Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted.[1]
Embezzlement is a kind of financial fraud The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain. 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 In a shop, a cashier is a person who scans the goods through a machine called a cash register that the consumer wishes to purchase at the retail store. 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 handling large sums of money could 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 the stability of political and social authority, and deliver could embezzle funds from clients' trust accounts, a financial advisor A financial adviser or financial advisor (US spelling), more recently often referred to as a financial planner, is a professional who renders financial planning services to individuals, businesses and governments. This can involve investment advice, which may include pension planning, and/or advice on Life insurance and other insurances such as could embezzle funds from investors, or a spouse Marriage is a social union or legal contract between people that creates kinship. It is an institution in which interpersonal relationships, usually intimate and sexual, are acknowledged in a variety of ways, depending on the culture or subculture in which it is found. Such a union, often formalized via a wedding ceremony, may also be called could 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.
In America embezzlement is a statutory offense so the definition of the crime varies from statute to statute. Typical elements are (1) the fraudulent (2) conversion The term is commonly applied when commercial space is converted into residential space or a rental residential apartment house changes from a rental property to co-operative ownership. It is rare that a rental apartment house becomes a condominium, because the underlying mortgage must be paid in full by the previous owner or sponsor before the (3) of the property Property is any physical or intangible entity that is owned by a person or jointly by a group of persons. Depending on the nature of the property, an owner of property has the right to consume, sell, rent, mortgage, transfer, exchange or destroy their property, and/or to exclude others from doing these things. Important widely recognized types of (4) of another (5) by a person who has lawful possession of the property.[2]
Fraudulent: The requirement that the conversion be fraudulent means simply that the defendant wilfully and without claim of right or mistake converted the property to his or her own use.
Conversion: 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 permanently is sufficient).[4]
Property: 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 Real property and personal property are the main classifications of property in the common law. Real property refers to land and the improvements made by human efforts—buildings, machinery, the acquisition of various property rights, and the like. Real property is also termed realty, real estate, and immovable property is not typically included.
Of another: A person cannot embezzle her own property.
Lawful Possession: 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 crime involving the wrongful acquisition of the personal property of another person. 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.[5] Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.
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Embezzlement versus larceny
Embezzlement differs from larceny Larceny is a crime involving the wrongful acquisition of the personal property of another person. 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 in two ways. First, in embezzlement, an actual conversion must occur; second, the original taking must not be trespassory Trespass to the person, historically involved six separate trespasses: threats, assault, battery, wounding, mayhem, and maiming. Through the evolution of the common law in various jurisdictions, and the codification of common law torts, most jurisdictions now broadly recognize three trespasses to the person: assault, which is "any act of such.[6] 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 A check register is a booklet used to record account transactions 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) entrusted 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.[7] 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 appellate courts have compounded this confusion by misinterpreting 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.[8][9] 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.[10]
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 is the consumption and savings 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." and pocket the difference. For example, in 2005, several managers of the service provider Aramark Aramark Corporation, known commonly as Aramark, is an American food, facilities, and clothing provider supplying businesses, educational institutions, sports facilities, and health care institutions. It is headquartered at the Aramark Tower in Center City Philadelphia, Pennsylvania. Aramark’s revenues reached $12.3 billion USD in 2009 and was were found to be under-reporting profits from a string of vending machine A vending machine provides snacks, beverages, lottery tickets, 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 or invoice 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 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 or till (British English) is a mechanical or electronic device for calculating and recording sales transactions, and an attached cash drawer for storing cash. The cash register also usually prints a receipt for the customer were invented just for this reason.
Some of the 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 entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either 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 2008. 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.[11] Congress has ruled that lawful as well as unlawful gains are includable in gross income[12] and that it is inconsequential that an embezzler may lack title to the sums he appropriates.”[13] 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.[14]
However, if a corporate embezzler can show four things,[15] then they need not include the embezzled funds in income:
"Where a taxpayer withdraws funds from a corporation
- which he fully intends to repay
- which he expects with reasonable certainty he will be able to repay
- where he believes that his withdrawals will be approved by the corporation
- 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."[16]
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.
See also
- FBI The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency. The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime. Its motto is the backronym of FBI, "Fidelity, Bravery,
- 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 deposit
- Fraud The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
- Fraud deterrence Fraud deterrence has gained public recognition and spotlight since the 2002 inception of the Sarbanes-Oxley Act. Of the many reforms enacted through Sarbanes-Oxley, one major goal was to regain public confidence in the reliability of financial markets in the wake of corporate scandals such as Enron, WorldCom and Waste Management. Section 404 of
- IRS The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue. The IRS is responsible for collecting taxes and the interpretation and enforcement of the IRC (Internal Revenue Code)
- Madoff investment scandal The Madoff investment scandal is the Ponzi scheme that former NASDAQ chairman Bernard Madoff confessed to in 2008. 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
- 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
Thu, 02 Sep 2010 08:45:18 GMT+00:00
BBC News An Aberdeen councillor facing embezzlement court proceedings has stepped down from some of his duties. Scott Cassie, 60, and wife Moira, 58, were charged in ...
Mon, 15 Jun 2009 02:25:08 PDT
to get the money he deserves. After being fired by a millionaire in an embezzlement scandal, the British Secret Service-trained Bentley decides to ... flixster.com.
