Employee embezzlement occurs when an employee steals trusted funds from their employer. This common crime is often difficult to detect, as many embezzlers work very hard to cover their tracks. To reduce the opportunity for employee embezzlement, it is necessary to employ a careful safety plan with multiple safeguards in place.
The Hiring Process
Prevention of employee embezzlement begins at the interview desk. If a prospective employer likes an applicant's resume and personality, they may not go the extra step of checking references or conducting a background check of any kind. This would be an unwise decision. Since embezzlers tend to leave a suspicious trail from one job to another, it is very important that all potential new employees have references that can speak about the honesty of the applicant. In positions where the employee will have access to cash registers, deposits, or other business funds, it may also be wise to conduct routine background checks on all potential employees to see if there is a history of criminal activity in the past.
The Background Check
Although a reasonable background check can help eliminate the potential for employee embezzlement, it cannot totally eliminate the risk. To further reduce the chances of internal theft, it becomes necessary to create a scrupulous security system that eliminates most of the possibility of employee embezzlement. No employee should have access to all funds and, if possible, all financial reports and deposits should require at least two employees to independently evaluate and sign the documentation. In addition, every business should hire an experienced CPA to manage their finances.
Breach of Trust
There are three elements of the offense of breach of trust:
Misappropriation: characterized by a material act, which consists in appropriating and using the property or sums held by a third individual or organization for personal purposes, other than what has been agreed.
Fraudulent intent, characterized by a moral element. The offender is aware that he is only a precarious or temporary owner of the thing, but voluntarily behaves like the owner. He is also aware of the damage resulting from the breach of his contractual obligations, and that it is impossible for him to return the funds following the misappropriation.
The existence of a prejudice that deprives the owner of his rights to the thing: it can be moral or material, but must exist.
Transfer of Ownership
In short, misappropriation as it relates to employee embezzlement involves a transfer of ownership by the owner to a trusted person, but that the latter:
In fact, in bad faith misuse;
Makes it a use not in accordance with the predestined use of the thing;
Intentionally refuses or delays the return of the thing;
Is unable to return the thing that has been destroyed, dissipated or has been the subject of any act of disposition.
Schedule a Consultation
It is important to contact a Forensic CPA to do a full examination of your business financials. If you are ever suspicious of employee embezzlement, contact the CPA to have a consultation so you can be advised on how best to proceed.