Embezzlement is the act of dishonestly appropriating or secreting assets, usually financial in nature, by one or more individuals to whom such assets have been entrusted.^[1] It is a kind of financial fraud In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of. For instance, a clerk Clerk, the vocational title, commonly refers to a white-collar worker who conducts general office or, in some instances, sales tasks. The responsibilities of clerical workers commonly include record keeping, filing, staffing service counters and other administrative tasks. In American English, this includes shop staff, but in British English, such or cashier A cashier is a person who scans the goods that the consumer wishes to purchase. After all of the goods have been scanned, the cashier then collects payment for the goods or services exchanged. In one form or another, cashiers have been around for thousands of years. In many businesses, such as grocery stores, the cashier is a "stepping stone& handling large sums of money can embezzle cash from his or her employer, a lawyer A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person licensed to practice law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain stability, and deliver justice. Working as a lawyer involves the can embezzle funds from clients' trust accounts, a financial advisor A financial advisor is a professional who renders investment advice and financial planning services to individuals and businesses. Ideally, the financial advisor helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stock, bonds, can embezzle funds from investors, or a spouse can embezzle funds from his or her partner. Embezzlement may range from the very minor in nature, involving only small amounts, to the immense, involving large sums and sophisticated schemes. More often than not, embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done without their knowledge or consent. Often it involves the trusted person embezzling only a small proportion or fraction of the funds received, in an attempt to minimize the risk of detection. If successful, embezzlements can continue for years (or even decades) without detection. It is often only when the funds are needed, or called upon for use, that the victims realize the funds or savings are missing and that they have been duped by the embezzler.

Embezzlement is a statutory offense so the definition of the crime varies. Typical elements are (1) the fraudulent In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of (2) conversion (3) of the property Property is any physical or virtual entity that is owned by an individual or jointly by a group of individuals. An owner of property has the right to consume, sell, rent, mortgage, transfer and exchange his or her property. Important widely-recognized types of property include real property , personal property (physical possessions belonging to an (4) of another (5) by a person who has lawful possession of the property.^[2] Embezzlement is a crime against ownership; that is, the owner's right to control the disposition and use of the property.^[3] The conversion element requires a substantial interference with the true owner's property rights (unlike larceny, where the slightest movement of the property when accompanied by the intent to deprive one of the possession of the property premanently is sufficient).^[4]

The requirement that the conversion be fraudulent In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of means simply that the defendant wilfully and without claim of right or mistake converted the property to his or her own use. The type of property that is the subject of embezzlement varies among jurisdictions.^[5] Embezzlement statutes do not limit the scope of the crime to conversions of personal property. Statutes generally include conversion of tangible personal property, intangible personal property and choses in action. Real property is not typically included. The critical element is that the defendant must have been in lawful possession of the property at the time of the fraudulent conversion and not have mere custody of the property. If the defendant had lawful possession the crime is embezzlement. If the defendant merely had custody, the crime is larceny Larceny is a form of theft. It was an offence under the common law of England and became an offence in jurisdictions which incorporated the common law of England into their own law. It has been abolished in England and Wales, Northern Ireland and the Republic of Ireland. It remains an offense in the United States, involving the taking and carrying.^[6] Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.

History of embezzlement

Historically, embezzlement was created by statute to deal with situations where secretion could occur while the perpetrator was actually innocent of larceny Larceny is a form of theft. It was an offence under the common law of England and became an offence in jurisdictions which incorporated the common law of England into their own law. It has been abolished in England and Wales, Northern Ireland and the Republic of Ireland. It remains an offense in the United States, involving the taking and carrying – typically because of the "lawful possession" element. That is, embezzlement fills in the blanks where larceny laws do not apply. The first general embezzlement statute was enacted in England in 1799. The statute was passed in reaction to the decision of King v. Bazeley, 2 Leach 835, 168 Eng. Rep. 517 (Cr. Cas. Res. 1799).

In Bazeley, a customer of a bank had given a teller a note to be deposited to the customer's account. The teller immediately pocketed the note. The appropriation was soon discovered and the teller was charged with larceny. The issue before the court was whether the actions of the teller constituted larceny. The court held that that the actions did not constitute larceny because the teller had lawful possession of the note at the time of the conversion. Bazeley's demonstrates the unreasonable limitations in the scope of common law larceny. In Bazeley, had the clerk placed the note in the till before deciding to steal it then the crime would have been larceny since by placing the note in the till the bank acquired constructive possession of the note and the subsequent appropriation of the note by the teller would constitute a trespassory taking.^[7]

Embezzlement versus larceny

Embezzlement differs from larceny Larceny is a form of theft. It was an offence under the common law of England and became an offence in jurisdictions which incorporated the common law of England into their own law. It has been abolished in England and Wales, Northern Ireland and the Republic of Ireland. It remains an offense in the United States, involving the taking and carrying in two ways. First, in embezzlement, an actual conversion must occur; second, the original taking must not be trespassory Trespass is a legal concept, which refers to intrusion into another person's property. Trespass to land is a type of trespass, which can cause criminal or a tort liability. In England and Wales, while one can easily run into a notice warning that "trespassers will be prosecuted", it will only bring a civil liability, unless the trespass.^[8] To say that the taking was not trespassory is to say that the person(s) performing the embezzlement had the right to possess, use, and/or access the assets in question, and that such person(s) subsequently secreted and converted the assets for an unintended and/or unsanctioned use. Conversion requires that the secretion interferes with the property, rather than just relocate it. As in larceny, the measure is not the gain to the embezzler, but the loss to the asset stakeholders. An example of conversion is when a person logs checks in a check register or transaction log as being used for one specific purpose and then explicitly uses the funds from the checking account for another and completely different purpose.

It is important to make clear that embezzlement is not always a form of theft or an act of stealing, since those definitions specifically deal with taking something that does not belong to the perpetrator(s). Instead, embezzlement is, more generically, an act of deceitfully secreting assets by one or more persons that have been entrusted with such assets. The person(s) enstrusted with such assets may or may not have an ownership stake in such assets.

In the case where it is a form of theft, distinguishing between embezzlement and larceny can be tricky.^[9] Making the distinction is particularly difficult when dealing with misappropriations of property by employees. To prove embezzlement, the state must show that the employee had possession of the goods "by virtue of her employment"; that is, that the employee had the authority to exercise substantial control over the goods. Typically, in determining whether the employee had sufficient control the courts will look at factors such as the job title, job description and the particular employment practices. For example, the manager of a shoe department at a store would likely have sufficient control over the shoes that if she converted the goods to her own use she would be guilty of embezzlement. On the other hand, if the same employee were to steal cosmetics from the cosmetic counter the crime would not be embezzlement but larceny. For a case that exemplifies the difficulty of distinguishing larceny and embezzlement see State v. Weaver, 359 N.C. 246; 607 S.E.2d 599 (2005). North Carolina has compounded this confusion by its appellate courts' mis-interpretation of a statute based on an act passed by Parliament in 1528. The North Carolina courts interpreted this statute as creating an offense called "larceny by employee"; an offense that was separate and distinct from common law larceny.^[10][11] However, as Perkins notes, the purpose of the statute was not to create a new offense but was merely to confirm that the acts described in the statute met the elements of common law larceny.^[12]

Methods of embezzlement

Embezzlement sometimes involves falsification of records in order to conceal the activity. Embezzlers commonly secrete relatively small amounts repeatedly, in a systematic and/or methodical manner, over a long period of time, although some embezzlers commonly secrete one large sum at once. Some very successful embezzlement schemes have continued for many years before being detected due to the skill of the embezzler in concealing the nature of the transactions or their skill in gaining the trust and confidence of investors or clients, who are then reluctant to "test" the embezzler's trustworthiness by forcing a withdrawal of funds.

Embezzling should not be confused with skimming which is under-reporting income Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time." For and pocket the difference. For example, in 2005, several managers of the service provider Aramark Aramark is the 19th largest employer on the FORTUNE 500. Since 1968 in Mexico City, the company has provided services at 14 Olympic Games, including Athens in 2004 and Beijing in 2008. They have been ranked as one of the top green IT companies by IDG's InfoWorld.. They have also been the subject of a number of disputes regarding labor practices were found to be under-reporting profits from a string of vending machine A vending machine provides snacks, beverages, and other products to consumers without a cashier. Items sold via these machines vary by country and region locations in the eastern United States. While the amount stolen from each machine was relatively small, the total amount taken from many machines over a length of time was very large. A smart technique employed by many small time embezzlers can be covered by falsifying the records. (Example, by removing a small amount of money and falsifying the record the register would be technically correct, while the manager would remove the profit and leave the float in, this method would effectively make the register short for the next user and throw the blame onto them)

Another method is to create a false vendor account, and to supply false bills A bill is a document requesting payment for an order previously supplied. Presentation of a bill is common practice on the part of restaurants, credit card companies, utilities, and other service providers. The bill for something is the total price of all services and goods received but not paid for, and is presented in the expectation of to the company being embezzled so that the checks that are cut appear completely legitimate. Yet another method is to create phantom employees, who are then paid with payroll checks.

The latter two methods should be uncovered by routine audits, but often aren't if the audit is not sufficiently in-depth, because the paperwork appears to be in order. The first method is easier to detect if all transactions are by cheque or other instrument, but if many transactions are in cash, it is much more difficult to identify. Employers have developed a number of strategies to deal with this problem. In fact, cash registers A cash register is a mechanical or electronic device for calculating and recording sales transactions, and an attached cash drawer for storing currency. The cash register also usually prints a receipt for the customer were invented just for this reason.

Some of most complex (and potentially most lucrative) forms of embezzlement involve Ponzi-like A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that financial schemes where high returns to early investors are paid out of funds received from later investors duped into believing they are themselves receiving entry into a high return investment scheme. The Madoff investment scandal The Madoff investment scandal is the Ponzi scheme that former NASDAQ chairman Bernard Madoff confessed to in 2009. He founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest. Alerted by his sons, federal authorities arrested Madoff on December 11, 2008. On March 12, 2009, Madoff pled is an example of this kind of high level embezzlement scheme, where is it alleged $65 billion was siphoned off from gullible investors and financial institutions.

Tax consequences

Proceeds of embezzlement must be included in gross income unless the embezzler repays the money in the same taxable year.^[13] Congress has ruled that lawful as well as unlawful gains are includable in gross income^[14] and that it is inconsequential that an embezzler may lack title to the sums he appropriates.”^[15] When the embezzler returns the victim’s funds either directly or indirectly (i.e. restitution) then the embezzler may have a reduction in taxable income.^[16]

However, if a corporate embezzler can show four things,^[17] then they need not include the embezzled funds in income:

“Where a taxpayer withdraws funds from a corporation 1) which he fully intends to repay 2) which he expects with reasonable certainty he will be able to repay 3) where he believes that his withdrawals will be approved by the corporation 4) where he makes a prompt assignment of assets sufficient to secure the amount owed, he does not realize income on the withdrawals under the James test.”^[18]

Safeguards against embezzlement

Internal controls In accounting and auditing, internal control is defined as a process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization's resources are directed, monitored, and measured. It such as separation of duties Separation of duties is the concept of having more than one person required to complete a task. It is alternatively called segregation of duties or, in the political realm, separation of powers are common defenses against embezzlement. For example, at a movie theater, the task of accepting money and admitting customers into the theater is typically broken up into two jobs. One employee sells the ticket, and another employee takes the ticket and lets the customer into the theater. Because a ticket cannot be printed without entering the sale into the computer, and the customer cannot enter the theater without a ticket, both of these employees would have to collude in order for embezzlement to go undetected. This significantly reduces the chance of theft, because of the added difficulty in arranging such a conspiracy and the likely need to split the proceeds between the two employees, which reduces the payoff for each.

Another obvious method to deter embezzlement is to regularly and unexpectedly move funds from one advisor or entrusted person to another when the funds are supposed to be available for withdrawal or use, to ensure that the full amount of the funds is available and no fraction of the savings has been embezzled by the person to whom the funds or savings have been entrusted.

References

1. ^ Definition of "embezzlement" from Legal Explanations
2. ^ Singer and Lafond, Criminal Law, 4th ed. (Aspen 2007) 261
3. ^ Singer & LaFond, Criminal Law (Aspen 1987) at 213.
4. ^ Id.
5. ^ Id. at 214.
6. ^ Id. at 261
7. ^ This limitation was further refined when the court held that if the employee having already formed the intent to steal the property placed the property in the till merely as a "repository" then the crime was larceny.
8. ^ Singer & LaFond, Criminal Law (Aspen 1997) at 213.
9. ^ In their book Criminal Law, Singer and LaFond provide an excellent analytical method for making these distinctions.Singer & LaFond, Criminal Law (Aspen 1997) at 221.
10. ^ N.C. Gen. Stat. § 14-74 provides in part: If any servant or other employee, to whom any money, goods or other chattels, . . . by his master shall be delivered safely to be kept to the use of his master, shall withdraw himself from his master and go away with such money, goods or other chattels, . . . with intent to steal the same and defraud his master thereof, contrary to the trust and confidence in him reposed by his said master; or if any servant, being in the service of his master, without the assent of his master, shall embezzle such money, goods or other chattels, . . . or otherwise convert the same to his own use, with like purpose to steal them, or to defraud his master thereof, the servant so offending shall be guilty of a felony . . .
11. ^ For cases interpreting the statute, See State v. Canipe, 64 N.C. App. 102, 103, 306 S.E.2d 548, 549 (1983); State v. Brown, 56 N.C. App. 228, 229, 287 S.E.2d 421, 423 (1982).
12. ^ Perkins, Criminal Law 2d ed. (1986) at 286.
13. ^ James v. United States, 366 U.S. 213 (1961).
14. ^ Id. at 218, also see Income Tax Act of 1913.
15. ^ Id. at 216.
16. ^ Id. at 220
17. ^ Gilbert v. C.I.R, 552 F.2d 478 (1977).
18. ^ Id. at 481.

See also

• Madoff investment scandal The Madoff investment scandal is the Ponzi scheme that former NASDAQ chairman Bernard Madoff confessed to in 2009. He founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest. Alerted by his sons, federal authorities arrested Madoff on December 11, 2008. On March 12, 2009, Madoff pled
• Fractional-reserve banking Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand. Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from demand
• Fraud In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of
• Fraud deterrence In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and is also a civil law violation. Many hoaxes are fraudulent, although those not made for personal gain are not technically frauds. Defrauding people of
• Sponsorship scandal The sponsorship scandal, "AdScam", "Sponsorship"or Sponsorgate, is a scandal that came as a result of a Canadian federal government "sponsorship program" in the province of Quebec and involving the Liberal Party of Canada, which was in power from 1993 to 2006. The program was originally established as an effort to
• White Collar Crime Within the field of criminology, white-collar crime has been defined by Edwin Sutherland as "a crime committed by a person of respectability and high social status in the course of his occupation" . Sutherland was a proponent of Symbolic Interactionism, and believed that criminal behavior was learned from interpersonal interaction with

Categories: Theft | Crimes This category includes articles on types and specific instances of crime. For articles on crime in general, see Category:Crime. Articles which only allege that a crime has occurred should not be included in these categories For specific alleged crimes which have not been proven in a court of law, consider using Category:Scandals or a subcategory | Commercial crimes Categories: Business law | Business ethics | Commerce | Crimes | Crime by type | Scandals | Economic problems | Fraud Categories: Crimes | Business ethics | Deception

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