Embezzlement refers to the act secretly taking or withholding or misappropriation of money or any asset, which is kept or maintained or placed under his authority by the company for which he works, but it actually is legally the property of the company or organization where the person works and involves falsifying the company records in order to conceal this act. It is an act of fraud and prosecutable offense.
How Does it Work?
- So, embezzlement is not a single day thing. The embezzler undertakes to siphon off funds or assets over a long period and keeps on adjusting and manipulating the accounts to cover up for the same. Initially, he may start with embezzling only a small amount of money.
- Alternatively, he may secretly embezzle money over some time, very systematically, and continuously manage to adjust the company accounts and continue to have the trust placed on him by the company.
- Further, the company has such a high level of trust and confidence in the person that it is tough first to accept the fact that he has embezzled funds.
- Secondly, the company is also reluctant to confirm with him directly, to know whether and when the funds or assets have been secretly swept away until and unless there are some strong proofs to prove him guilty.
Examples of Embezzlement
Let’s understand the topic using a few examples.
Kriston handles the admin and accounting for petty cash expenses for supercomputers ltd. She has been managing the said department for years now, and the company has given her the authority to decide for granting approvals for any petty cash expense to be incurred by the employees and the company for business.
Since the amounts of petty cash expenditures are generally tiny in number and due to the trust placed in Kriston, not much audit is done for such expenses. Kriston, on the other hand, has been sanctioning payment in the name of certain petty expenses and withdrawing for herself. This act of Kriston, where she has authorized payment and kept the money to herself for her personal use, resembles an act of embezzlement.
Johnson is the managing director of a company and looks after the business affairs of the company. At any given time, there are various computer hardware assets held by the company, which it maintains for any replacement required by its employees.
Johnson takes over a few of the hardware parts and uses it for personal use. On the other hand, he makes sure to write off those particular assets in books so that no one knows about this and adjusts his accounts accordingly. This act of Johnson of taking the property of the company for personal use and adjusting the books of a company is known as embezzlement.
Types of Embezzlement
Embezzling can be done in any form. The below list is only an inclusive list, and there are various methods adopted by people to embezzle money and assets from the company they work for.
- Stealing cash is the top most common form of embezzlement in companies and organizations.
- Set up a fake vendor and get the business dealings through such vendors.
- Tweaking the computer systems, which lets you perform even unauthorized transactions.
- Negotiate with a vendor to avail of a percentage of sales in return of business to him.
- The primary case would be corporate credit cards being used for personal needs.
- The most crucial factor in embezzlement is trust; The company highly trusts the person.
- The person has power or authority, which he exercises to gain hold of the money or asset.
- The person himself or his family has taken ownership of the money or asset.
- The person has been very well aware of his actions and has intentionally done the act.
Effects of Embezzlement
- Destruction of trust placed on the embezzler.
- Incurs loss due to money washed out or assets siphoned off;
- Window dressing of accounts;
- Damage to the company brand image.
- Negative impact on the consumers dealing with the company;
- Reduction or sharp reduction in market share prices of the company, in the case, listed.
- Time erosion in legal procedures and battle.
- Disruption in internal administration – having in place an upgraded internal control along with changes in business operations.
Embezzlement refers to secretly withdrawing money from the company by a person who is entrusted with the authority to manage and utilize the funds for the business. It is an intentional act done by the embezzler and involves stealing the money or assets from the company for self-use or the use of family and friends.
This article has been a guide to Embezzlement and its meaning. Here we discuss examples and types of embezzlement with effects and factors. You may learn more about financing from the following articles –