Can You Embezzle From Your Own Company?

Yes, you can embezzle from your owner company if the company has more than one owner. Embezzlement occurs when a person is entrusted with money and misappropriates money for personal use. If you are the company’s sole owner, you cannot steal from your company; meaning, you cannot embezzle money from yourself.

Embezzlement occurs when funds that belong to one’s employer or business partner are misappropriated or stolen. This dishonest act occurs in many forms and all different situations. Small and large companies fall victim to embezzlement, as many partners and owners wrongly assume that their peers and employees will not resort to theft.

The act of embezzlement falls under the definition of fraud and occurs when employees or partners abuse the trust placed in them and take advantage of their access to the company to steal funds. If shoplifting, for example, is stealing from a different corporation, embezzlement is stealing from the business the perpetrator is a part of.

Research shows that employees commit over 75% of business embezzlement. These cases show that stealing from within a company may be easier than attempting to extort money from the outside, based on an overall lack of suspicion that employees or partners would commit these acts.

While it is true that reliable accounting software can track spending and possibly identify thieving employees, it also makes sense to remain informed about how embezzlement works and the other ways to prevent this act from occurring. Unfortunately, embezzlement cases continue to appear yearly.

When business owners are unaware of the dangers of embezzlement or uninformed regarding how partners can prevent embezzlement, their companies are in jeopardy. Therefore, it is essential for business owners to remain informed and vigilant so they do not lose the profits they have worked so hard for.

Unfortunately, business owners are often caught off guard by embezzlement. Sometimes, it is the most dedicated and intelligent employees who commit fraud. These dishonest employees use their strong reputations to cover their disreputable actions and attempt to profit from business owners’ naivete.

In this article, we will outline how to prevent embezzlement from occurring within your business and identify individuals seeking to defraud a company. We will also cover how to prevent future embezzlement and discuss the most common ways that employees and fellow partners commit these dishonest acts.

What Are the Most Common Embezzlement Schemes?

Individuals steal money from companies in all sorts of ways. Sometimes embezzlers are crafty and hatch intricate plans behind the scenes; other times, and they work in full view of everyone. Sometimes dishonest individuals gradually divert capital from company funds; other times, they act once and steal a significant amount. Regardless of their approach, individuals need to be able to notice and identify embezzlement at their companies and stay vigilant.

If these “red flags” sound familiar, it may be worth checking the business’ financial records immediately.

Payroll Fraud

Sometimes, embezzlers utilize creativity in their plans. For example, we have seen employees add fictitious workers to the company’s payroll without anyone noticing. These fake people are often related to the employee who designs the scheme, and the false employees receive real paychecks, draining the company of funds.

For example, Paul Wilson from Cleveland, Ohio, works at a clothing store in Los Angeles. The company is a large chain, and hundreds of employees work in stores across California. Paul is great with computers and technology, and it doesn’t take much to add Angela Wilson, his mother, and Sara Wilson, his sister, to the company’s payroll. So now, Paul’s family is collecting lucrative checks from a store they have never set foot in.

Taking Office Supplies

One wouldn’t think that stealing stamps, pens, coffee, or stationary would qualify as an egregious offense, but what about printers, computers, and other equipment? Stealing is wrong any way one views it, and some employees sell office supplies for themselves, profiting off of goods intended to help employees work more effectively.

Also, some workers use the company phone line to make expensive, long-distance calls or charge their calls to the company. When employees or partners take advantage of company policies, it is problematic, and this can even involve running up an exorbitant lunch tab.

Undercharging

Fraudulent workers commonly provide their families and friends with significant discounts and deals. While some employers may encourage “friend and family discounts,” these helpful policies, workers can easily abuse these policies. For example, when company merchandise sells for cheap, the business’ profits suffer. One excellent way to deal with this is to consistently monitor the company’s record books.

For example, Gus owns a liquor store in Cardiff, California. Every employee can sell beer and wine to their direct families for 20%, but liquor is excluded.

Marcus, an employee at Gus’ store, sells liquor to his family and friends for 50% off, citing the “family and friends” discount. Unfortunately, Marcus’ actions are enough to throw off Gus’ monthly budget and distort the store’s profit margin. Luckily, one of the other employees tells Gus what has been happening, and he not only fires Marcus, he contacts an attorney and takes legal action.

Setting up a False Supplier

Sometimes, fraudulent workers get creative and set up “ghost” suppliers. They may even create false records and documents to show that the supplier is legitimate. Then, the only thing left to do is to pay the supplier. But instead, the “payments” go to the employee, who suddenly has a much larger company takeaway.

Issuing Fake Refunds

In another attempt to steal from the company, some employees will issue refunds to customers who do not exist. The worker collects the money, and the cycle continues. This behavior is common in e-commerce because refunds are often issued electronically.

For example, Sal works for an e-commerce company called E-Day which sells umbrellas. About once a month, 1-2 umbrellas malfunction, and the company issued a $50 refund. So Sal begins to create refund slips for false customers and pay himself $50 each time, and because refunds are issued often, his supervisor is none the wiser.

Creating Fabricated Bad Debt

Dishonest employees work in all different positions, and this technique is unique to accountants or bookkeepers. These workers deposit a customer’s check or money order but then write off the payment as a bad debt.

Then, the employee claims that the customer never paid. The company writes off the debt while the original employee keeps the payment.

These are a portion of the most popular embezzlement schemes. However, this list does not capture all of the tactics out there. However, if one of these situations sounds familiar, company owners must review their records before it is too late.

What Are Embezzlement Warning Signs?

It is essential for company owners, partners, and managers to stay mindful of their employee’s actions, even when it is difficult. Company owners should have a trusted chain of command and stay aware of employees’ duties and activities.

While this may seem overreach, many businesses lose money and property to embezzlement daily, and it is better to be safe than sorry.

Here, we have identified some of the most common warning signs of employees’ fraudulent behavior and the circumstances that create embezzlement.

Disappearing office supplies

If companies find they must continually replace office supplies, check company records and see if the activity has changed over the last year. Often, expenses like this go unnoticed, even when they fluctuate. However, an employee could take equipment or items home each week and sell them for profit.

Missing Cash

Sometimes, employees take advantage of a surplus of petty cash around the office. When a manager or supervisor notices large changes in the spending of petty cash, it could be that a fraudulent employee is responsible.

Employees who refuse vacation

Working hard is a good thing, but it isn’t normal to refuse vacation. Sometimes employees working on a scheme do not want their replacement to see what they are up to. It is suspicious when even the most dedicated worker does not want to take some time off.

Workers who constantly seek overtime

Working overtime is commendable; overtime also provides employees with unsupervised time in the office. Business owners should not be suspicious of every employee who works hard and wants to get ahead, but they have just cause to ask questions of the worker who will not stop volunteering for overtime.

Employees who suddenly appear wealthy

Sometimes thieves are savvy but not very intelligent. Owners know how much money their employees make, and if they suddenly show up with a new car or buy a new house, these purchases could be telling signs. Embezzlement often results in rapid, newfound wealth, resulting in extravagant spending.

Workers who spend too much time with the company’s vendors

In some cases, employees who spend a lot of time with vendors do so because they plan to steal money from the company. Or they have already done so.

Business owners should check company records and speak with employees when they see these signs. Many employees are a tight-knit group; chances are that someone else is already aware of what is happening. However, the owner may have to do a little detective work to determine who is involved.

How Can Employee Embezzlement Be Prevented?

Being familiar with embezzlement tactics can help to prevent the act from occurring. Here are some useful ways to avoid enabling employees who seek to commit dishonest acts.

Routinely walk around the office.

Owners that stay in their private offices all day become out of touch. Walk around the premises and talk to people. This daily movement will do two things: show employees that you are in constant contact and encourage them to see you not only as the “boss” but as an equal. There is a fine line between authority and encouraging feedback. When owners are respected and informed, they find the best of both worlds.

Record petty cash exchanges

However, spending money is provided to employees around the office; the exchanges must be recorded. Make sure that whoever handles the money documents how, where, and why the business spends. This way, owners will notice if someone suddenly spends too much or steals.

Make regular deposits

Instead of leaving money around, deposit it regularly. Make a clear record as you deposit checks and cash into the company accounts. Then, if some money goes missing or is unaccounted for, the owner can check the log and understand what happened.

Delegate financial tasks

One worker should not be in charge of all financial duties; this could create a tempting situation. Rather, delegate and divide the tasks among several employees, and keep records of each worker’s dealings.

What Are Additional Ways to Prevent Fraudulent Behavior?

In general, terms, preventing employees from committing embezzlement relies on communication and positive philosophy.

When hiring employees, the company owners or partners should ensure that they understand that honesty is paramount. Owners should create policies that encourage straightforward communication and make sure that workers do not only sign the policy forms but read them as well. Business owners should also encourage an open environment. Employees should feel free to ask questions and respect their managers, supervisors, company partners, and owners.

When business owners foster an open, communicative, yet structured space, employees feel free to express themselves and are less interested in breaching the company’s trust.

Lastly, employee compensation should be clearly outlined before owners finalize hiring. If workers have questions about their salaries or express dissatisfaction, business owners should address these concerns before finalizing their contracts. Content, satisfied workers are much less likely to engage in criminal acts or breach the business’ trust.

Contact the Legal Professionals at Nakase Wade

Business owners should quickly contact an experienced employment attorney when the embezzlement issue rears its ugly head. The licensed attorneys at Nakase Wade are familiar with California’s complex employment laws and accustomed to handling and prosecuting embezzlement cases.

The California business attorneys and corporate lawyers at Nakase Wade know how to deal directly with embezzlement and other fraudulent actions. Time is of the essence in many cases, so contact our skilled legal team today.

At Nakase Wade, we often answer our clients’ questions about employee embezzlement with excellent guidance regarding the important decisions they must make. Our skilled attorneys will quickly evaluate the situation and make sure that you make the best decisions for your company, your employees, and, most importantly, yourself.

Contact the business lawyers & corporate attorneys at Nakase Wade today.

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