What is it Called When You Steal Money from Your Own Business?

It is called embezzlement when someone steals from their own company or employer. Embezzlement occurs when the person stealing has control of the money or asset and takes the money for personal use. A person can steal from their own company when there are two or more owners.

What is it Called When You Steal Money from Your Own Business?

Jim and Gertrude are partners in a software company called EZ Apps in San Francisco, California. Jim and Gertrude met in business school, and in addition to being colleagues, they consider each other friends and trust each other.

EZ Apps has had a terrific year, thanks to the success of one of their apps, which has become popular worldwide. As profits and popularity have exploded, the two partners have hired more app developers and expanded into a new building in the Mission District. As entrepreneurs, things for Jim and Gertrude could not be going better.

However, Jim has no idea that Gertrude has been slowly building an embezzlement scheme that could topple the entire business and leave Jim penniless.

About a quarter of Gertrude’s sales to clients go directly into a private bank account kept secret from the business. Gertrude prints false receipts for business expenses such as computers, printers, and smartphones, and then she takes the money. Gertrude is adept at stealing from her own business, and because she started small and slowly started taking more and more money, her busy partner Scott has not noticed.

As EZ Apps’ star rises and the company’s revenue shoots up, Gertrude slips more and more money into her private account. Since Jim is more of a design and people person, and Gertrude spends her time crunching numbers and figuring out profit margins, there is no one to monitor her activity. So Gertrude becomes bolder, forging receipts for thousands of dollars for expenses such as “computer upgrades for the developers” or “new equipment for new hires.”

Jim is caught up in his company’s success and grows busier daily. Although Jim is beginning to have a funny feeling about Gertrude, he trusts his partner. Since profits are still increasing, Jim cannot comprehend that the company is losing money and could be much more profitable.

It is not until several months later when the IRS audits the company, that Jim learns the truth about his trusted partner. Gertrude gets a lawyer and attempts to lie her way out of the situation, but an IRS agent quickly figures out Gertrude’s scheme, and she is ultimately arrested for embezzlement. Naturally, Jim blames himself, and though his business lawyer helps him to collect the company’s damages, Jim resolves to be more vigilant when running EZ Apps by himself.

Can Someone Embezzle from Their Own Company?

An embezzlement is a form of stealing; it is impossible to steal from oneself. However, if an individual has a business partner, shareholder, or co-owner, they can technically steal from their “shared” business. In Gertrude’s case, she steals not only from her company EZ Apps but also from her trusted business partner Jim.

When entrepreneurs find out that someone at the company is stealing, they are normally shocked, saddened, and angry. However, when a business partner decides to take advantage of their partners and the business everyone has worked diligently to build, they are taking an enormous risk and likely also committing a crime.

When a company partner steals, they are breaking the law and the other partners may not only force them out of the company; they might also press legal charges. Sometimes, when embezzlers are caught, they provide excuses. Partners who steal try different defense strategies, from claiming their actions “were a mistake” to explaining that they desperately needed the money and had nowhere else to turn.

However, when a company partner abuses their trust and takes money from their own business, there is no excuse for their abusive, illegal actions. People who steal will continue to steal until they are penalized. There can be no second chances for people who abuse their power and position and take money or property from the company for personal gain. In addition to breaching their fiduciary duty, those who steal violate the trust of their partners, employees, and shareholders.

Unfortunately, business owners are often surprised when someone steals from their business; therefore, they are caught off guard and do not act decisively. Sometimes, the most trusted and productive employees embezzle funds, making the situation even more difficult to confront. These deceitful employees or partners use their excellent reputations to disguise their actions in attempts to profit illegally from company profits.

In this article, we will go over the different manners of stealing from companies and discuss what business partners and owners can do to prevent theft within the company.

What Are the Different Forms of Company Theft?

Stealing can take on different forms, but they are all serious offenses that should be treated as such.

Physical Theft

When an individual takes cash, property, or other physical items from the company to use for their gain, this is physical theft.

For example, if Jeff works at a video game store and, after every shift, he takes a game home with him, this is physical theft. Jeff’s acts are unauthorized, and since he does not give the games back but takes them as his own, he is stealing property from his own business. Jeff also uses the games for his gain—and enjoyment—when playing them.

Intellectual Property Theft

When individuals take ideas that do not belong to them, this act is known as intellectual property theft. Although some believe intellectual theft is not as serious as property theft, this type of stealing is just as grave. For example, when someone uses ideas that are not legally theirs or steals their trade secrets, they are committing a crime.

Intellectual property theft can take a range of forms, including the theft of concepts, secrets, and new product ideas.

For example, Henry visits a rival company to see a friend who works there. While Henry is there, he takes a screenshot of a new app that his friend’s company is developing. In a week, Henry used the idea to create a new app for his company. When Henry’s friend sees the new app, he is shocked. Henry may have stolen only an idea, but he used that idea for personal gain.

Henry has committed a serious act of intellectual property theft, and if the business discovers his actions and prosecutes him, he faces jail time. Additionally, his company may be in trouble because Henry’s illegal actions took place while he worked for them.

Fraud

When an individual lies about the purpose of the money they have taken, they usually commit fraud. Typically, a fraudulent individual will take money or assets from the company and state that they are using it for company expenses. But, instead, the person will use the money for personal gain or divert the money to a personal account.

Fraud is both a civil and criminal offense, so those who commit fraud may face time in jail and be forced to pay back the damages they are responsible for. However, proving fraud can be tricky since the plaintiff must show that the person lied, the other party believed the lie, and the lie was created to damage or suffer.

Fraud cases often contain an additional wrinkle: if the suspect is typically deceitful or seen as untrustworthy, this trait can damage the case. The issue grows complex because it may not be considered a “reasonable action” for the person to rely on the word of the fraudulent individual.

For example, Bob has worked at an investment firm in San Diego, CA, for ten years, but he does not have a trustworthy reputation around the office. It is common knowledge that Bob was accused of fraudulent behavior and embezzlement at his old company many years ago.

Bob’s only close friend is one of the firm’s partners, Franco. Franco gives Bob a company credit card for business purchases as a sign of friendship. Typically, only the business partners get this specific credit card, and Bob goes straight to the mall.

Bob is accused of fraud when he buys thousands of dollars of clothing and electronic equipment. Bob tries to pass his purchases off as “for the company,” but no one buys his stories.

Finally, the owners remove Bob from the company, but he avoids the most severe charges because, in court, the judge does not deem it “reasonable” for Franco to have given a dishonest man the means to commit fraud.

Embezzlement

When someone has power over the assets, property, or funds they misuse, they embezzle from the company. Usually, partners who have access to funds or are signatories on accounts commit fraud.

An embezzlement is a form of theft applicable to many situations. For example, Jason works at a movie theater, but he slips $5 into his pocket each shift from the register. Jason is embezzling from the theater with his simple scheme.

Rod is a greedy company executive who, each week, diverts a small amount of his business’ revenue stream into a private account. Rod, just like Jason, is embezzling from his company. The amounts and acts may differ, but the classification is the same.

Breach of Fiduciary Duty

Violations of fiduciary duty are serious offenses and can lead to partners forcing each other out of the company or dissolution of company. So how do these violations occur?

When business partners have a fiduciary relationship, they pledge to act for the benefit of the business first. Fiduciary duty means that the business partners hold their business and their partners above their desires and goals.

Fiduciary duty is often featured in a company’s partnership agreement. When partners know that a breach has occurred, they can sue them for this violation. Often, partners violate their fiduciary duty to take money or assets or steal funding for their private ventures. When an errant partner places the entire company at risk, the other partner can sue for civil damages based on the business’ losses.

When Should Individuals Sue for Breach of Fiduciary Duty?

Individuals who are positive that their partner violated their fiduciary duty should not hesitate to take legal action. Strong businesses rely on respect, ambition, and trust. The business is neither strong nor safe if anyone associated with the company breaches the partners’ trust.

Individuals who take money or assets from the business and use it for their gain breach their partners’ trust.

When partners embark on a business venture together, they accept a specific code of proper conduct and respect. For example, although using small amounts of company money for lunch or dinner is generally acceptable, when a partner takes a significant amount of money, pays for lunch, and then pockets the rest, there is a problem.

Individuals should consider legal action when their partner’s actions do not only violate their fiduciary duty but are:

Criminal in nature
Damaging the company
Strictly done for personal gain

When a partner steals property, money, or other assets from the company, they must be dealt with promptly, so the company has a chance to survive. Once you know stealing is occurring, contact an experienced business attorney for a consultation.

What Are Typical Types of Company Stealing?

Individuals take money from businesses in a range of ways. Sometimes workers develop intricate plans by themselves; others work in teams.

Successful companies are always busy, and when employees and partners are busy, it is easy to overlook or ignore red flags.

Falsified Bad Debt

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

Next, the individual assets that the customer never paid, and the company writes off the debt. However, the original worker keeps the payment.

Stealing Office Materials

One wouldn’t think that pilfering small things like pens would be a punishable offense, but what about desktops and other expensive gear?

Some employees set up to sell office materials, making money from small incidentals intended to help worker productivity. However, when workers steal laptops or phones, this may qualify not only as embezzlement but as larceny.

Plus, some individuals use the company phone to place long-distance calls or charge their excessive calls to the business. When partners exploit company policy, it harms the company’s resources and can skew profits and records.

Undercharging

Another scheme used by f workers is to provide their families with extreme deals. While some employers encourage “friend and family” sales, some employees exploit these policies. One way to deal with this is for owners to carefully examine the business’ financial documents.

For example, Mark owns a sandwich shop store in Solana Beach, California. Each employee gets sandwiches for their families for 10% off, and most employees appreciate the deal.

Lee, a worker at Mark’s shop, sells sandwiches to his family for 40% off, wrongly citing the store’s discount. However, Lee’s family is large, and they do not complain about the cheap, tasty sandwiches they can access.

Lee’s exploitative actions are enough to distort Mark’s monthly budget and the store’s profit margin. As a result, mark’s once-profitable store is falling apart, and he isn’t sure why. Is the quality of his sandwiches suffering, he wonders?

A customer informs Mark about Marcus’ scandalous acts in the nick of time. Furious, Mark fires Marcus and then contacts a lawyer.

Payroll Fraud

Sometimes, embezzlers are more creative than we give them credit for being. In this scheme, employees add fictitious workers to the business’s payroll. These fake “employees” are often related to the person who plans the offense; when the false employees receive real paychecks, the embezzlers cash in.

For example, Hank Bebop from Rhode Island works at an electronics boutique in Los Angeles, CA. The company is a chain with hundreds of stores across the western United States. Hank easily adds Betty Bebop, his mother, and Winnie Bebop, his sister, to the company’s payroll. Soon, Hank’s family collects checks from a west coast boutique they have never set foot in.

What Are the Signs That Employees Are Stealing From Their Businesses?

Many businesses lose money and property to embezzlement, and businesses should be safe than sorry. Therefore, company owners must stay aware of their employees’ actions.

Here are some important red flags to watch out for:

Employees With Sudden Wealth

Owners know how much money their employees make, and when they suddenly show up with a new car or buy a new house, their actions might signal theft.

Embezzlement often results in rapid, newfound wealth and, sometimes, extravagant spending. Employees who steal are already taking a large risk, so they also may take risks with their spending.

Disappearing Cash

Sometimes employees take help themselves to the petty cash around the office. If a partner or manager notices significant changes in petty cash spending, it could be a sign that an employee is taking advantage—and taking cash

Employees Refusing Vacation

Let’s face it: it is abnormal to refuse vacation. While sometimes employees have a project they want to finish or change their vacation month, most workers covet the chance to take a break.

Sometimes employees working on an embezzlement scheme, or have one in place, do not want their replacements to see what they are up to.

Workers Who Want More Overtime

Working overtime is usually admirable and helpful for the business. However, if a certain employee will not stop asking to work extra hours, check around the office for additional red flags.

For example, Tony, a mid-level office worker at a ski shop in Big Bear, California, realizes that when he is alone in the shop “working overtime,” he has access to the shop’s records, and no one is there to monitor his actions. So Tony sets up a simple system of embezzlement using fake receipts and continually asks for more overtime to work on his plan.

The more Tony works overtime, the less his supervisor worries about Tony because he appears to be a model employee. When the shop owner realizes someone is stealing, Tony is the last person he suspects.

How Can the Company Prove That Someone is Stealing from the Business?

Proving that a person stole or stole from the business is a complex legal challenge. Even when partners or owners are certain that someone inside the company is taking money, property, or assets, they are typically unsure what to do next.

Most business partnerships provide each partner the right to access and manage the company’s assets through accounts, credit lines, and cash. However, partnership agreements also require partners to abide by their fiduciary duty and not damage the company.

When a partner can prove that the act of theft violated the partnership agreement, they have a better chance to convince others that the person also committed a crime.

For example, some partnership agreements disallow company partners from using business accounts for personal loans. Other operating agreements include provisions prohibiting partners from making large purchases for personal use without the approval of the other partners.

For example, Jeff is a law firm partner and wants to buy a new computer monitor for at-home work and meetings. Before he can spend $2,000 on a monitor, he must run his idea by the other partners. Jeff is a top-notch attorney, and the other partners unanimously decide that Jeff should buy the monitor for his online meetings with clients. Jeff works from home a lot since he has an infant daughter, so his request is even more understandable.

Partnership agreements make proving wrongdoing from inside the company easier. But, without a document to rely on, arguments over misuse of company money descend into “he said, she said” arguments that partners cannot resolve.

The Importance of Evidence

It is vital that the partner who suspects theft:

Collects evidence: receipts, withdrawal slips, statements, texts messages, emails, and more
Ensures that they have copies of financial statements for the company
Gathers evidence of the company’s overall expenses and income

If no partnership agreement exists, a partner can still prove that embezzlement occurred. Partners must rely even more on evidence in this case, so make sure to:

Gather proof in the form of texts, letters, emails, and more
Discuss the issue with the other partners and make sure they support taking legal action
Contact a skilled business lawyer for an expert opinion on the matter.

How Can Company Theft Be Averted?

Here are some useful tips on dealing with deceitful workers.

Record Exchanges of Cash

While normally, spending money is provided to employees around the office; owners must record the amounts and ask for receipts. Ensure that whoever handles the money documents how, where, and why the business spends. Now, owners will notice if someone suddenly spends too much or steals.

Walk The Office

Owners should resist the urge to isolate themselves from employees. Daily movement accomplishes two things: it reminds workers of your presence and encourages them to see you as a boss and hardworking equal.

For example, Dave is a partner at a law firm in Los Angeles, California. The partners at Dave’s firm all have large, spacious offices on the top floor of the business and seldom need to go downstairs for anything. However, the attorneys, secretaries, and paralegals all work downstairs.

Dave always takes three laps through the downstairs area: one in the morning, one at lunchtime, and one before he leaves. As a result, Dave always knows what his employees are up to, and they both recognize Dave and respect him. From casual chats to strategy sessions for court, a lot can happen on a walk through a busy law firm, and Dave makes sure not to miss a beat.

When Company Theft Plagues Your Business, Contact Nakase Wade

If you suspect someone at your company of stealing, you must act quickly and decisively. Unfortunately, many partners, owners, and employees try to overlook or ignore company stealing because they know it is difficult to prove. However, suppose you contact the business lawyers and corporate attorneys at Nakase Wade. In that case, we are confident we can help pinpoint the theft occurring at the company and make sure the individual is found guilty of their acts of theft.

If the business is a partnership, our skilled business lawyers will help you review the partnership agreement to see if the person violated it. However, if the business is structured differently or no such agreement exists, we still have many ways to deal with theft quickly and effectively.

If you have already discovered evidence of wrongdoing, please bring it to our first meeting, or let us know. If not, our attorneys will help you obtain evidence that supports your claim.

We know it can be tempting to confront the individual immediately, but we do not recommend it. First, contact our legal team, and we can develop a strategy that specifically suits your company. We aim to help you eradicate theft and return to normal business operations as quickly as possible.

Our licensed attorneys are familiar with California’s employment laws and have handled and prosecuted many embezzlement cases. We offer excellent guidance regarding the crucial decisions our clients they must make for their companies, their employees, and themselves.

Contact the business lawyers at Nakase Wade today, and let’s ensure that no one steals from your business again.

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