6 Types of Embezzlement Cases

There are many types of white-collar crimes, but one that ultimately leads to a breach of trust is embezzlement. This offense takes place when someone entrusted to take care of your money steals them from you. Often, embezzlement is a well-planned and long-operating scheme wherein the perpetrator repeatedly and systematically diverts or pilfers small amounts of money until they snowball into a sizeable fortune.

The guilty party in this type of crime is a person with the authority to handle the company’s money or property, so it’s difficult to detect and it’s hard to prove. If you find yourself or your business facing this kind of misappropriation problem, you need to find a federal embezzlement attorney to guide you on what proper steps to take.

One way to prevent becoming the victim of this crime is to broaden your knowledge about how it's committed. Below are some of the most common types of embezzlement cases in business which you should always look out for:

1. Payroll Fraud

This type of embezzlement involves using the company’s payroll to steal money. For example, a manager runs off with money from the company by padding the payroll with ghost employees. Many large companies or even government offices usually don’t discover payroll discrepancies, so embezzlers could rake in millions before getting caught. It’s also important to note that clocking in or billing overtime hours you didn’t work for can be considered payroll fraud and may be grounds for termination.

Since embezzlers can be crafty, some would even dare file wrongful termination cases against their employers. Thus, despite being a small business owner, you need an employment lawyer to help you deal with employee complaints, explain complicated law provisions to you, or even represent you in court.

2. Ponzi Scheme

A Ponzi scheme happens when a fake or real financial planner or advisor guarantees to put your money in a type of investment that promises you a high rate of return. But rather than placing your asset in the promised investment, the embezzler pockets your money. This fraudulent method is considered embezzlement because you entrusted your money to the person, expecting that you'll get a guaranteed rate of return. Bernie Madoff gained infamy for perpetuating the largest Ponzi scheme in history. He was sentenced to 150 years for his crime.

3. Funds Siphoning

Siphoning is carried out by storefront liners or other employees tasked to accept payments on behalf of the company. But instead of putting the money in the cash registers, the culprit pockets it. Offenders usually get away unpunished because they don’t record the sale in the cash register or books. Thus, any discrepancy in the system may be challenging to detect. But with the wide use of digital payment platforms and credit cards today, fund siphoning may not be as rampant as before.

4. Forged Checks

This type of embezzlement happens when a trusted employee issues company checks or makes digital payments to their accounts and hides the theft by manipulating the company’s books. The use of signature stamps enabled the proliferation of this type. Small businesses that don’t have proper check and balance policies are usually victims of this kind of theft.

Suppose only one person or manager handles the processing of checks, reconciliation of transactions in the books, and documentation approval. In that case, that person may be tempted to commit embezzlement simply because there’s an opportunity to do so.

5. Lapping Fraud

This scheme involves manipulating the accounts receivable to hide the theft. For this fraudulent activity to perpetuate, the employee uses subsequent account receivable payments intended for the company to cover the theft.

For example, the employee pocketed USD$200 received from client A. Through record manipulation, a subsequent payment of USD$350 from client B would be recorded as payment for client A’s account, and the remaining USD$150 would again be pocketed. Then, the stolen amount from client B’s payment will be covered using subsequent payments from other customers or parties who owe the company.

This scheme can go on using different accounts receivable. If left undetected for years, the embezzler can pocket a substantial amount of money.

6. Faking Vendor Payments

Unlike lapping fraud which uses accounts receivable or money owed to the company, this scheme manipulates the accounts payable or money owed by the company to other parties. This scheme is a classic embezzlement case where the employee uses bogus vendor payments to hide the money they stole from the company.

The perpetrator may create fraudulent invoices and manipulate the accounting entries to cover their tracks. If the company doesn’t carefully check and audit expense payments, this fraud could go on for years and may remain undetected.

Bottom Line

Many types of embezzlement can happen in your business. If left unchecked, such schemes can break your company funds. Consult an embezzlement lawyer to know your rights and deal with perpetrators.

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