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February 2, 2006
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Examples of embezzlement

Embezzlement by definition is a crime committed by someone in a position of trust.It can be the loss of a small amount of money such as a couple of dollars taken from a cash register, or it can be a considerable sum stolen through an elaborate bookkeeping scheme.Thieves typically see themselves as smarter than those with whom they work and cunning enough to beat the system. Methods of embezzling are limited only by imagination.Here are some examples:- In the simplest situation, cash is received and the employee merely pockets it without recording the transaction. This type of theft is difficult to prevent or detect if the transaction is a cash sale, and no subsequent entry is necessary in receipt or accounts receivable records.- Somewhat more complicated is what's called lapping, which involves the temporary withholding of receipts for accounts receivable payments. In lapping, an employee who opens mail or otherwise receives cash and checks as payment holds out a $100 dollar cash payment made by Customer A. To avoid arousing suspicion on A's part, $100 is then taken from a $200 payment made by customer B a few days later. This is sent on, together with the necessary documentation, for processing and crediting to the account of A. The embezzler pockets the remaining $100, which increases the shortage to $200. A fraud of this nature can run on for years. Of course, it requires detailed record keeping by the embezzler in order to keep track of the shortage and transfer it from one account to another to avoid suspicion. Any indication that an employee is keeping personal records of business transactions outside your regular books of account should be looked into. If the embezzler also has access to accounts receivable records and statements, he or she is in a position to alter the statements mailed to customers. - Sometimes company bank accounts are used for check kiting. In fact, losses from some large check-kiting schemes have been great enough to cause a company to go broke. In the usual scheme, the check-kiter must be in the position to write checks on and make deposits in two or more bank accounts. One account could be the embezzler's personal account and the other a business checking account. If the embezzler has an accomplice in another business, two business accounts may be used. The check-kiter takes advantage of the time period (or "float"), which is the number of days between deposit of a check and collection of funds. Assuming that it takes three business days for checks to clear, a simple kite between two banks could be accomplished as follows: On Dec. 1, a check in the amount of $5,000 drawn on bank "A" is deposited in bank "B." On Dec. 2, the check kiter cashes a $5,000 check payable to cash and drawn on bank "B" with a teller at bank "B."Because the original kited check will be presented to bank "A" on Dec. 4, the check kiter on or before that date will deposit a $6,000 check drawn on bank "B" in bank "A" not only to insure payment of the original kited check but to increase the amount of the kite.As the process is repeated, the kited checks become larger, more cash is withdrawn, and the scheme can continue until the shortage is covered or the kite "breaks," which is when one of the banks refuses to honor a kited check because the funds on deposit are uncollected.- Occasionally an embezzler will added the names of relatives or fictitious individuals to the company payroll and thus enjoy several salary checks each week instead of one. - When a company becomes large enough that the owner-manager can no longer exercise personal surveillance of accounting activities, opportunities arise for a dishonest employee to set up a dummy supplier and falsify documentation of fictitious purchase transactions.Those are but a few examples, but there are dozens of ways a dishonest employee can defraud their employer. Purchasing agents can accept "kickbacks" from suppliers from purchasing goods at inflated prices. Salespeople and others can pad their expense accounts. Overtime can be falsely recorded. And so on ...


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The Summit Daily Updated Feb 3, 2006 09:21PM Published Feb 2, 2006 12:00AM Copyright 2006 The Summit Daily. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.