2019-09-26 19:07:30

One awful day you wake up and realize an employee you trusted has been embezzling from your company. It’s one of the most devastating things to happen to a small business owner.

Examples of embezzlement abound and there’s no shortage of ways that employees steal.

The goal of this article is to help you spot the warning signs. If you can think like an embezzler, you will know what to look for to protect your business.

And protect it you must! The consequences of embezzlement can be catastrophic to a small business. According to the Hiscox Embezzlement Study, the median amount of an employee theft is a whopping $294,000.

The following list of embezzlement examples is based on my professional knowledge. Early in my career I was an in-house lawyer at a regional bank. We investigated hundreds of embezzlement cases involving customers of the bank, often small businesses. Later I served as vice president of human resources in a corporation where I also dealt with other types of workplace theft and fraud. So I’ve seen it all.



What is Embezzlement?

Before we look at embezzlement examples, let’s first understand what embezzlement means.

Embezzlement is when an employee or someone else in a trusted position steals from your business. They use the money or other assets for their own use.

Embezzlement often implies a white collar crime where funds are taken from bank accounts, or perhaps where check forgery or payroll fraud is involved.  But it’s not limited to those circumstances.

Embezzlement is a crime — the person is usually charged with felony theft under state law.  In certain circumstances it can also be a federal crime. Penalties may involve jail time and fines.  The embezzler usually is ordered by the court to pay restitution to the business. However, businesses are rarely repaid in full.

Embezzlement Examples

Here are the top 25 embezzlement examples and workplace thefts to watch out for:

Forging Checks

The employee writes company checks or makes electronic payments to himself. The employee then cooks the books to hide the theft.

This classic embezzlement example is made easier when a company uses a signature stamp of an executive’s signature.  A signature stamp is literally like handing employees a blank check because they can “sign” checks without your knowledge.

Prevention:  Separate responsibilities: one worker to process checks and another to reconcile transactions and approve documentation. If you don’t have enough staff for separate functions, then reconcile bank statements yourself. Require purchase orders or invoices for every payment. And stop using a signature stamp — or keep it under lock and key.

Cashing Customer Checks

The employee endorses and cashes customer checks payable to the company, then keeps the funds.

Today, as more payments become electronic the essential crime is the same. The employee may set up a bank account with a fictitious name similar to the employer’s to divert electronic payments into. Small banks and credit unions can be lax in allowing accounts to be established by the employee using fake “doing business as” names.

Prevention:  Separate the functions so that one person is responsible for processing payments and another for reconciling accounting entries. Implement controls to track customer payments at every step to avoid this kind of embezzlement.

Faking Vendor Payments

Next on our list of embezzlement examples is when an employee steals company funds, but tries to hide them as payments to vendors. Faithless employees may create fake vendor invoices and change accounting system entries to hide their tracks.

Prevention:  Regularly review detailed expense reports (not just summary reports) broken down by vendor, amount and purpose. If you stay familiar with your numbers, it’s easier to spot when a payment or accounting entry looks suspicious. If your company is big enough, separate the functions employees perform.

Overbilling Customers

The employee overbills customers, keeps the extra money and covers it up with false accounting entries.

Sometimes this a large-scale fraud where each customer or transaction is overbilled by a small “fee” for years. Other times it involves double billing the same amount twice or tacking on charges for items the customer did not buy.

You might be tempted to think of this as stealing from customers, but it’s really a type of embezzlement. Your company bears responsibility for overbillings and will have to make good to customers.

Prevention:  Conduct a periodic audit of customer billings. Pay close attention to customer complaints about billing errors and require thorough explanations from staff of how they occurred. Complaints may be a warning sign of a bigger problem.

Theft of Customer Card Data

25 Examples of Embezzlement and Workplace Theft

An employee who takes phone orders may later use the customer’s credit card data to charge personal purchases online. Or a gas station manager may use a skimmer device to skim card data from terminals at the pumps.

A more nerdy version is when an employee downloads credit card data from company IT systems. Then he or she sells it on the dark web.

Prevention:  Limit access to customer data to only those who need it. Deploy technology that redacts credit card numbers or only prints out the last digits, to limit trash harvesting or unintentional sharing. Change permissions when someone with IT access leaves the company. If you use card terminals, install anti-skimming technology — some municipalities now require it.

Padding An Expense Account

Padding examples range from the occasional attempt to justify an expensive lunch using a “creative” description, all the way to elaborate embezzlement schemes.

Large enterprises take padding seriously – shouldn’t you? A Hewlett Packard CEO was ousted back in 2010 in the face of allegations he padded his expense account to hide an extramarital affair. HP saw the issue as one of trust.

Prevention:  Have a written policy detailing what is — and is not — reimbursable. Go over the policy in staff meetings. If employees do a lot of business travel, consider using an expense management app such as Zoho Expense or Expensify to control approvals and see scanned receipts all in one place.

Double Dipping

Next on our list of embezzlement examples is when there’s a single legitimate business expense, but the employee gets two reimbursements. She first pays for an expense with the company credit card. Later she submits a cash reimbursement request for the same expense.

Prevention:  Insist on seeing underlying receipts for all expenses (don’t just review the credit card statement). Use expense management software if your employees incur a lot of reimbursable expenses.

Using a Company Credit Card For Personal Use

The employee pays for personal expenses using a company credit card. The good news is, often these thefts are sporadic and the amounts are small.

However, what if the same employee also manages the accounting system and realizes no one but her pays attention?  Using a company credit card for personal use can turn into massive embezzlement examples when combined with falsified accounting records.

Prevention: Always have two people involved in the process: one to approve expenses and one to handle accounting. Require documentation of the expense purpose.

Voiding Transactions At The Cash Register

An associate at the cash register voids transactions and pockets the cash. This is a common way of skimming money from a retail small business.

Prevention:  Newer point-of-sale systems have security protocols to help prevent this kind of theft. For example, they allow clearance levels so you can require manager approval to void a sale. Employee ID numbers track how often a particular staff member voids transactions so you can spot repeat offenders.

Siphoning Off Cash Deposits

Before dropping off the cash deposit bag at the bank in the evening, the employee pockets some of the cash. The amount may be small enough not to be missed — perhaps $100. But week after week, it adds up to thousands of dollars.

Prevention:  Personally count the day’s cash, complete the deposit slip and enter the amount into the accounting records yourself before handing off the bag. Or separate the functions so two people are involved. Other strategies may help, such as security cameras in the area where cash is counted along with using locked deposit bags. See more tips for cash processing.

Raiding the Petty Cash Box or Safe

This theft can be as simple as the employee taking $200 out of the safe or petty cash box.

Prevention:  Lock up large sums and keep the key yourself, to minimize access and temptation by employees. Or use security cameras. Read: 20 Cash Handling Best Practices.

Pocketing Cash From Fundraisers

Skimming fundraiser money is all too common in non-profits. But this type of fraud also  occurs in businesses that take on a charitable cause. If one person has complete control over the money, from start to finish, the temptation to steal can prove too great.

Prevention: Always have at least two people involved in the workflow of collecting, recording, depositing and remitting donations. Don’t give temptation a chance.

Stealing Office Supplies

It’s shocking how many employees seem to feel it is okay to take large amounts of office supplies home. Theft of supplies usually involves consumable items like postage stamps, Post-it notes or coffee supplies.

The owners of one business started during the Great Depression had a solution. They were so frugal they required employees to turn in their pencils at the end of each day!  You don’t need to keep THAT tight a rein. But reasonable controls are a best practice.

Prevention:  Put most of your supplies under lock and key and replenish an open supply area sparingly, to keep shrinkage small. A security camera may help. Discuss the use of supplies in a company meeting to set the tone and convey company values.

Stealing Equipment or Raw Materials

25 Examples of Embezzlement and Workplace Theft

In construction and manufacturing businesses, an employee may hide company property in a dumpster or storage area and retrieve it after hours.

Equipment theft also occurs in offices. Think laptops or small document scanners that can be slipped into a backpack or handbag.

Prevention:  Lock up or bolt down valuable items if feasible. Label important equipment with a number and let employees know you plan regular audits to ensure items are still on site. Use security cameras and electronic access systems.

Stealing Products

The employee steals company products. Examples include jewelry or perfume from a high end retail shop. Typical victims are small retailers that lack shrinkage controls. It is stunning how many owners simply stuff inventory into a storeroom with no tracking system.

Another variation is when a waiter does not charge friends for food or drinks in a restaurant.

Prevention:  Use security cameras. Implement an inventory management system and regularly check inventory levels. There’s even POS technology that tracks voided transactions and discounts, and alerts the owner or manager.

Burglarizing Company Premises

Think classic inside job — with or without accomplices. The employee leaves a door unlocked or uses a key to get in after hours. Your company gets ripped off.

Prevention:  Install security cameras. Implement an electronic security system to secure after-hours access, and record who is coming and going.

Stealing Returned Merchandise

This theft can occur in a retail or ecommerce setting, or in any business that swaps out old equipment. The employee simply takes returned items home or resells them on Craigslist or eBay.

A lack of controls makes this theft easier. In some small businesses, returns may be stacked haphazardly in a corner. Is it any wonder they disappear?

Prevention:  Implement control systems for managing returns and other property.

Claiming a Company Laptop Was Lost

The employee gives a laptop or mobile device to a family member and tells the employer it was lost. The company then replaces the item.

Prevention: Use device management software that enables the company to disable lost devices and track their location.

Setting Up Fake Employees

The embezzling employee sets up fake employees, pockets the pay, and cooks the books to hide the transaction. This happens in businesses with absentee owners or over-trusting owners who do not pay attention.

Prevention:  Implement systems to reconcile headcount with staffing expenses. Regularly review a detailed headcount report breaking down expenses by employee. Remember, detailed reports are your friend. Embezzlement is much harder to spot if all you ever look at are summary reports or a high-level P&L.

Falsifying Overtime

This may include schemes where co-workers clock in and out for each other. Or it may involve a payroll clerk creating false entries for supposed overtime that he pays himself.

Prevention:  Use electronic timesheet systems. Watch overtime pay closely for unusual increases. Compare detailed reports to identify exactly which employees are getting overtime and when — you may spot suspicious patterns.

Failing To Remit Payroll Tax Money

The employee embezzles money earmarked for the employer’s payroll tax remittances or other tax money. Eventually the taxing authority will come down hard on the business owner for not sending in the tax money, and may file a lien against the business or seize property. So not only do you face losses from embezzlement, but you have the IRS on your tail — a double whammy!

This embezzlement example is perpetrated by dishonest bookkeepers, financial staff, payroll clerks and even small outside payroll services.

Prevention:  Outsource to a large reputable payroll service such as Paychex or ADP. It goes a long way to prevent an embezzlement nightmare. Or require a regular audit by an outside accounting firm.

Collecting Kickbacks From Vendors

In this scheme, the employee gets vendor kickbacks and you are unaware. Kickbacks can be cash. They also can take the form of additional products and services used in an employee’s side business or home. A warning sign is an unusually close relationship between a vendor and an employee.

Prevention:  Get involved in choosing vendors yourself. This minimizes collusion between vendors and faithless employees.

Selling Trade Secrets; Corporate Espionage

The employee sells sensitive information to a competitor. Or the employee takes  confidential documents and trade secrets with him when switching jobs.

You see this in high tech startups. For example, a former Google executive was indicted on criminal charges for stealing 14,000 files for self-driving car technology and taking them to a startup later acquired by Uber.

Prevention:  Have strong employee agreements. Shared cloud storage systems help you manage and track who has access to what.

Business Identity Theft

An employee secures a line of credit or loan in your company name, using the money for personal purchases. The embezzler then uses company funds to make the payments. Typical embezzlers are finance staff or bookkeepers with access to accounting records and legitimate accounts used to cover their tracks.

A similar theft is when a partner or family member in a family business takes out unauthorized loans in the company name.

Prevention:  Implement internal controls for checks and balances. Require detailed reports to see where money is going. Sudden cash flow issues or a negative change in your company credit score may be warning signs of embezzlement.  Pay particular attention to services like PayPal and others than allow pre-approved loans or advances against your account.

Starting A Business Using Company Resources

In this situation, employees start their own businesses on company time. In the worst situations employees use company resources such as software code in their new software product, or steal raw materials.

Make no mistake about it: this is theft. Yet, some delusional souls brag on social media about what they are doing!

Still, the employer may get the last laugh. Why? Because generally speaking, an employer owns all work product created on company time.

Prevention:  Set expectations properly with employees — and make your policy clear, whatever is. Some employers encourage side businesses but others have a no moonlighting policy. Even if you allow side businesses, make it clear that activities  should not be conducted during work hours, and company resources may not be used.

Final Thoughts on Embezzlement

It’s important to be an engaged business owner. Pay attention, ask questions and review detailed reports. Deploy technology to control access and approval levels, and provide early warning of anything unusual. Most of all, implement checks and balances in your processes to make sure no single employee has complete control. Steps like these help protect the livelihoods of everyone in the business.

Images: Depositphotos.com






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