How To Find Employee Embezzlement In Your Organization

You’re most likely no stranger to the concept of embezzlement. Generally speaking, we regularly hear about embezzlement cases in the upper management and executive levels of business. For example, there’s the CEO who immerses themselves in a corporate scandal that attracts global media attention.

However, not every case of embezzlement involves a C-level executive or some high-ranking manager. In fact, many cases of these crimes occur at lower levels, among employees who work in just about any department or any type of establishment you can think of.

And it can happen within your own company walls as well. That’s why it’s vital to know what embezzlement looks like behind the scenes and what you can do to stop it.

A Textbook Definition Of Embezzlement

To eliminate any confusion, it’s worth stating the definition of embezzlement. The dictionary defines embezzlement as “theft or misappropriation of funds placed in one’s trust or belonging to one’s employer”. The money is essentially redirected to a thief’s pockets, either in the literal sense or transferred to another account which they own.

Where embezzlement gets broad and complex is with the various ways it can occur. There are many types of embezzlement with each of them having their own unique characteristics, and it’s vital for you to know what they are to safeguard your company.

Types of Employee Embezzlement

  • Lapping – With lapping, an employee receives money from a customer (or their account) and pockets the funds. When another customer account payment comes through, part of the money taken goes to cover the first account. When a third account payment comes in, then part of the money goes to cover the second. And the cycle continues.
  • Siphoning – Typically an act committed by retail workers and cashiers, siphoning involves taking money from a cash register (and pocketing the funds) in such a way that there are no discrepancies between what’s in the drawer and what’s on the computer. With that said, they won’t enter the item in the computer but still have to find ways to keep track of funds and transactions.
  • Check Kiting – This type of embezzlement happens when an employee has access to two accounts, typically, a personal account and a business account. For example, the employee might take money out of a business expense account and deposit funds into a payroll account. A check would then be drawn on the payroll account and deposited in the business expense account to cover the deposit made earlier. With each deposit, the amount increases until there is more floating between the two accounts.

There are many other forms of embezzlement involving overtime recording and kickbacks. The running theme here is that embezzlers tend to hold positions of authority, and have access to various accounts where they can easily transfer and manipulate the flow of funds.

How To Spot Embezzlement In Your Organization

Now here comes the tricky yet crucial part of this discussion – spotting signs of embezzlement within your own organization. It’s tricky to do so because embezzlement takes on various forms, meaning that each case will present itself with slightly different indicators.

It’s important to look for these indicators and patterns, because fraud has a “spillover” effect. If a scandal involving just one or a few employees were to erupt, then the whole company’s reputation could be at stake.

Signs Of Employee Embezzlement Within Your Organization

  • Employees who never take vacation – An embezzler knows they need to cover every square inch of their tracks. To leave their operation unattended is too great a risk, so they’ll likely never step out of the office. Although it’s not a guarantee, an employee who refuses to take a vacation could be a candidate for embezzlement.
  • Missing documents & sudden inconsistent reporting – In an attempt to stay off the radar, an embezzler may deliberately fail to turn in certain reports. Or in cases where they are in charge of managing certain data, they may omit details since few people will review their work.
  • Discrepancies in check amounts and ledgers – One of the more noticeable traces of embezzlement are imbalances with check amounts and ledgers that don’t match. Ironically, department workers can easily miss these signs due to a lack of poor surveillance or total negligence.
  • Unusual financial losses – Since embezzlement involves stealing funds, over time, it’s possible that you will notice diminishing profits. This sign can be tricky to detect because you may not notice a small amount of money being stolen unless a company is proactively monitoring its employees.
  • Sudden change in employee spending habits & lifestyle – Take this sign with a grain of salt, but a drastic change in one’s expenses (ie. fancy attire, pricey car) can indicate something is afoul. This is certainly true if the employee’s salary hasn’t increased.

Put Your Defences Up

The key to spotting these signs is regular, proactive monitoring and analysis of financial data. An open culture where employees and managers of all levels are subject to the same scrutiny will discourage workers from taking part in illicit activities. If everyone feels bound by the same rules and regulations, despite their rank, there’ll be less opportunity for them to engage in embezzlement.

You should also look at implementing a comprehensive data analytics tool that allows you to find missing details, numerical inconsistencies and other data anomalies. Our GLAnalytics solution allows you to keep track of such errors, giving you an opportunity to spot employee embezzlement proactively before it gets worse.

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