There are many different forms of embezzlement, but they can be organized in broad groups as follows:
Stealing Assets
The majority of embezzlement cases involve stolen assets, typically money. It can be as minor as taking a computer keyboard to use at home or as major as stealing millions of dollars and everything in between. Here are some tactics that are often used in embezzlement cases.
Siphoning
Siphoning occurs when an employee takes all or part of a payment for something and pockets it. This can happen, for example, when someone working the counter at a restaurant “forgets” to ring up an item in the cash register, but charges the customer for it and fulfills the order.
Unless there is oversight, this can be completed without the customer or the employer realizing what has happened. Automation of point-of-sales systems can reduce the chance of this happening, as it becomes much harder to fulfill an order that hasn’t been entered in the computer.
Siphoning can also occur by overcharging customers and pocketing the difference.
Siphoning does not always involve the physical stealing of money; although computers can make some siphoning more difficult, they can facilitate siphoning of another sort, where small amounts of money are transferred to the employee’s bank account.
As the name suggests, siphoning typically happens in small increments. Major discrepancies are easy to detect, but small ones can sometimes be hidden within acceptable accounting tolerances.
Check Kiting
Check kiting takes advantage of the banking float, or the time between when a check is deposited in the bank and when it clears. It involves at least two banking accounts, and works as follows:
- A check is written from Account A to Account B. Account A doesn’t actually have enough funds to cover the check.
- A check is then written from Account C to cover the amount needed in Account B, but Account C doesn’t have the funds either.
- Alternatively, a check can be written from Account B to Account A. This is called circular kiting.
Check kiting is often unsustainable, as it’s quickly discovered. However, employees with access to large amounts of money can sometimes use it in the long-term to earn interest during the period of the float, and then keep the amount earned from interest.
Payroll and Overtime
Payroll and overtime embezzlement involves paying employees for time that wasn’t actually worked. This can take place at different levels of the company. For example, Employee C could punch Employee D’s time card when Employee D isn’t actually present, making it appear as if Employee D worked more hours than they actually did.
Payroll embezzlement can also include adding a fake employee to the payroll system and routing the salary into a bank account controlled by the embezzler.
Overtime embezzlement is when an employee claims fraudulent overtime hours. This type of fraud may be attractive because many companies pay employees more for overtime, and overtime is often worked on an irregular schedule, meaning that it can be easier to hide than a regular payment.
Ponzi Schemes
Ponzi schemes, or pyramid schemes, work on the same principle as check kiting schemes, but the victims are often individuals rather than companies. They typically work as follows:
- The fraudster offers an investment opportunity with attractive terms—often, a much higher return on investment than normal.
- People invest their money.
- As new people invest, the fraudster uses their investment money to pay dividends to the original investors. This gives the fraudster the illusion of being successful in their investments.
- The scheme will ultimately get to the point where it is no longer sustainable, and the last people to invest (or the last people to try and retrieve their original investments) lose the money that they have put in.
Ponzi schemes can go on for a long time, provided that the fraudster still has money coming in from new investors.
Misuse of Assets
Misuse of assets occurs when someone uses company property for their own gain. This could involve things like using company computers to conduct outside business, unauthorized use of a company vehicle or using the company’s specialized equipment for personal gain.
Kickbacks
A kickback is when some sort of financial enrichment arises from the preferential treatment of a person or company. Kickbacks come in many forms, from relatively small to substantial: a politician might receive money in exchange for voting in a certain way, a purchasing manager might receive money or goods in exchange for choosing a particular vendor or a real estate agent might direct clients to a particular mortgage broker in exchange for money.
Kickbacks can be very difficult to prove, particularly if the fraudster has taken care to prevent a paper trail and cover their tracks.
Forging Documents
A forged document is an unauthorized document created for fraudulent purposes. This might involve creating fake documents to engage in a payroll scam or creating false company documents and using them for personal gain. This type of embezzlement often occurs in conjunction with other types.
