What Is Embezzlement?

Embezzlement refers to a form of white-collar crime in which a person or entity

misappropriates the assets entrusted to them. In this type of fraud, the embezzler
attains the assets lawfully and has the right to possess them, but the assets are
then used for unintended purposes.

Embezzlement is a breach of the fiduciary responsibilities placed upon a person.

KEY TAKEAWAYS

 Embezzlement takes place when a person uses funds for a different

purpose than they were intended to be used.
 Embezzlers might create bills and receipts for activities that did not occur
and then use the money paid for personal expenses.
 Ponzi schemes are an example of embezzlement.
 Businesses lost approximately $400 billion each year to theft.
 Embezzlers can be held civilly and criminally responsible for their crimes.
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Understanding Embezzlement
Individuals who are entrusted with access to an organization’s funds are
expected to safeguard those assets for their intended use. It is illegal to
intentionally access that money and convert it to personal use. Such activities
can include diverting funds to accounts that appear to be authorized to receive
payments or transfers.

However, the account is a front that allows the individual, or a third party they are
collaborating with, to take the funding. For instance, an embezzler might create
bills and receipts for business activities that never took place or services that
were never rendered to disguise the transfer of funds as a legitimate transaction.

An embezzler might collaborate with a partner who is listed as a consultant or

contractor who issues invoices and receives payment, yet never actually
performs the duties they are charging for.

The nature of embezzlement can be both small and large. Embezzling funds can
be as minor as a store clerk pocketing a few bucks from a cash register.
However, on a grander scale, embezzlement also occurs when the executives of
large companies falsely expense millions of dollars, transferring the funds into
personal accounts. Depending on the scale of the crime, embezzlement may be
punishable by large fines and time in jail.

How Embezzlement Occurs

Embezzlement occurs when someone steals or misappropriates what they were
entrusted to manage or safeguard. The property or asset need not be of
substantial value for embezzlement to occur. Although closely related, it differs
from fraud in that the embezzler had authorization to use or oversee the property
or funds.1

Some types of embezzlement might be combined with other forms of fraud, such
as Ponzi schemes. In such cases, the embezzler scams investors to entrust
them with their assets to invest on their behalf but instead uses the money for
personal gain and enrichment. Maintaining the fraud often includes seeking out
new investors to bring in more money to appease prior investors.

150 years
The number of years Bernie Madoff was sentenced to for orchestrating the
largest Ponzi scheme in history.
An embezzler might also transfer other assets aside from money. An embezzler
might claim the real estate, company vehicles, smartphones, and other hardware
such as laptops that belong to an organization for personal use.

Embezzlement might take place in the government sector as well if employees

seize local, state, or national funding for themselves. Such instances may occur
when funding is disbursed to fulfill contracts or to support projects, and a member
of the staff skims some of the money that was earmarked.

People who embezzle can be charged with a criminal offense and/or held civilly
responsible for their crimes. Punishment can range from paying monetary
damages and restitution to victims to incarceration. White-collar offenses don't
prevent offenders from being prescribed lengthy prison sentences, ones
traditionally handed to violent offenders.

How to Prevent Embezzlement

Theft and embezzlement cost companies approximately $400 billion per year and
account for more than 50% of business failures. 2  However, employers can
develop strategies to combat these white-collar crimes.

Embezzlement starts with the breach of trust of a person endowed with the
authority to care for the property or money of another. Reasonably, one of the
first steps an employer can take is to carefully vet prospective employees. In
addition to conducting thorough background checks, assessing character traits
via personality tests could reveal undesirable behaviors.

A security and monitoring program could also deter corporate crime, especially
when performed by a dedicated risk management team or an independent, third
party. These risk managers can create internal controls that monitor behaviors
and allow for the anonymous reporting of suspicious activities, as well as conduct
periodic audits that expose misappropriations.

Early detection helps to mitigate losses and protect the company's reputation and
the people it serves. Employers should make clear that they have a no-tolerance
policy regarding illegal acts such as embezzling and communicate the
consequences of such violations. Every company should promote a culture of
honesty and fairness, encouraging its employees to remain vigilant and report
instances of wrongdoing.

Embezzlement FAQs 
How To Legally Prove Embezzlement? 
To legally prove embezzlement, the claimant must prove that the perpetrator had
a fiduciary responsibility to the victim and that the embezzled asset was acquired
through that relationship and conveyed to the accused intentionally.3

What Is the Punishment for Embezzlement?

A person can be held civilly and criminally responsible for embezzling.
Punishments range from monetary fines and restitution to imprisonment.

What Is a White Collar Crime?

A white-collar crime is a non-violent crime committed by a business professional
who breached trust for economic gain. White-collar crimes include fraud, theft,
counterfeiting, embezzlement, money laundering, and other fraudulent schemes.