This article is a supplement to the earlier article “Who Are Embezzlers?
Misappropriation of funds is a method of money theft of which embezzlement is a common form. This form of crime involves a person who steals something he/she possesses and controls but does not own.
The Embezzlers are very crafty people and are looking for weaknesses in systems including cash controls, accounting, inventory, payroll or other systems of control. They have control and access to funds of a business because of their position of trust. There are many forms of embezzlement including:
- The outright theft of money by misclassifying the theft as a business expense or an owner draw. This happens when often in small businesses, where the owner is busy developing his/her business.
- The creation of ghost employees by a bookkeeper who has an agreement with individuals who have false identities that can cash the payroll check and split the proceeds. This happens when a business owner does not pay attention to the employees on his/her payroll.
- The bookkeeper has authority to authorize company credit cards without company oversight. This happens when the controller ignores the activities of the bookkeeper because they are having an affair.
- The Chief Financial Officer (CFO) creates a vendor, placed it in the accounts payable list of vendors, without verifying the authenticity of the vendor. Months later, the CFO started to issue checks to the fictitious vendor based on false invoices. This fraud happens when the accounts payable clerk ignores irregularities, or the controller is too busy to listen to the accounts payable clerk.
- Mid-level managers of a large corporation ignored the collusion of an employee with vendors and allowed internal controls to be overridden. The compromised employee approves the invoices while knowing the services were not provided and made payment by the corporate credit card in violation of corporate policy. The managers ignored the policy violation for years and allowed continued payment by the corporate credit card, until an experienced manager arrived and questioned the use of the credit card.
- An employee and member of the accounting staff of a corporation were entrusted with the accounting for orders from customers. The staff member colluded with the customers to allow the theft of equipment and products. The employee receives a percentage of the theft.
Proving the Crime of Embezzlement
An attorney working with a private investigator of these types of embezzlement must develop the evidence and testimony that the embezzlement was committed and prove the embezzler took part in the following activities:
- The embezzler was entrusted with control of the company’s money but not ownership of the company. The investigator of these types of money theft cases must show that the responsible person was entrusted with the funds through their employment contract, or instruction or directions by the owner of the company. Also, look at the training and prior experience of the embezzler. The embezzler knowingly and willfully embezzled the funds, and it was not by mistake or an error. They may or may not know that they committed a crime, but the adage is “ignorance of the law is no defense” applies. This intent is inferred by actions of the person and statements made to friends and associates about the source of their increased wealth.
- The embezzler must also use the ill-gotten gains not just possess them. The taking of money and depositing it to an account outside the control of the victim is enough, but it is more beneficial to prove conversion by disposing of some of the money. The investigator should look closely at what was done with the money.
- The embezzler in some instances gets “cold feet” and returns the money. The embezzler is still responsible for the misappropriated funds. The investigator should just prove the theft occurred and the means they used. If there is a special technique used the investigator should develop the methods to establish criminal intent.
These cases can be handled civilly through a lawsuit or criminally at the state or federal level. Some attorneys end the embezzlement by recommending firing the person and recommending improved controls of the money. Others, depending on the client and the amount of money involved will file a civil lawsuit. Generally, the embezzler has spent the money and has no means to repay the victim. The case will be condensed to a civil judgment which can be pursued for collection.
In other cases, for losses of $100,000 to under $1,000,000 can be brought to the state court by the District Attorney (DA). At some DA’s offices, these types of cases sit in the inventory of the DA Investigator for months and possibly years. Whereas, cases resulting in $1,000,000 or more should be brought to the US Attorney’s office for investigation by a federal agency including IRS Criminal Investigation, or the FBI.
Resources of the US Government are limited, and prosecution may take place depending on the amount of time and energy that will have to be applied to the case. In most cases, it will be beneficial for a victim with means, to investigate the matter by hiring a private investigator / forensic accountant to work with their attorney to develop the case elements to prepare the case for presentation. This situation will improve the chances that the case will be prosecuted.
The matters discussed above are relevant in today’s business environment. They may damage business relationships and may impact the cash flow of the business and its continuation. Consider referring the client or law firm on the case to Sage Investigations, LLC, especially, if the case continues beyond your involvement. If the case requires a forensic accountant and the testimony of an Expert Witness, you can still benefit from the case by receiving a referral fee. Please contact Chief Investigator Edmond Martin of Sage Investigations, LLC at 512-659-3179, or email: firstname.lastname@example.org. Let our 26 years as an IRS Special Agent and 16 years of Private Investigation benefit you and your clients. Click to read about our team and their CVs.