High profile embezzlers like Bernie Madoff grab the headlines. The ability of an embezzler to destroy the lives of thousands of investors through the most cynical deceits sticks in our imaginations.
But the vast majority of employee embezzlement happens on a much smaller scale. As a business and employment attorney, I have often had puzzled clients come to me wondering how their business can have a lot of cash flow but not much profit. These are typically small businesses where an owner-manager is fully occupied with making the business grow. Financial details are often left to trusted employees or even partners or co-owners who have often been with the business on a long-term basis or have come with excellent resumes and strong recommendations. But embezzlement strikes large and medium size businesses as well.
Slippery Slope of Theft
Few employees who steal actually start out with a plan to embezzle. Certainly there are employees who have embezzled their whole business careers, who seek out employers who will become trusting, dependent, and whose business safeguards are vulnerable. Amazingly such serial embezzlers can transition from employer to employer looting the business as they go. But the great majority of embezzlers fall into embezzlement gradually in small ways, then do not know how to get out so they continue on the same path.
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Many embezzlers when confronted with their theft say, with apparent truth, that they did not intend to steal but only needed money for a short term emergency after which they fully intended to pay the money back. But most employees live paycheck to paycheck so the means of payback are seldom available and new emergencies arise which require more purloined cash.
Once an employee works out a method for taking funds, the path becomes easier and easier and they are able to put aside feelings of fear and guilt as embezzlement becomes a way of life. Deterring an employee from stepping over the line the first time is a benefit to the employee and employer as well.
Awareness is Key
Unfortunately partners and co-owners are in a premier position to embezzle from a business. It is not unethical or inappropriate to be aware of the actions of partners and co-owners and to require transparency in their dealings with the company and outside business. Undisclosed sweetheart deals between one partner and a customer is, unfortunately, very common and just as destructive as failing to deposit company funds in the business bank account.
No Recourse for Victims
Surprisingly law enforcement is often reluctant to prosecute embezzlement. Law enforcement is overwhelmed these days with budget cuts and prosecution of violent crimes so that they tend to view embezzlement as difficult to prove, petty theft which is often contributed to by a negligent employer.
Also many employers are reluctant to report embezzlement out of embarrassment or out of concern that they may be committing slander or contributing to false arrest. Serial embezzlers are skilled at apologizing, making the employer feel foolish, threatening to expose embezzlement to investors or partners, and promising to pay back the funds if only the employer will provide a good job reference or at least avoid a negative job reference.
This is how career serial embezzlers are able to become financial vampires sucking money out of one business after another.
Check back on Monday for Part 2 of attorney Randall Crane’s blog post: 6 Steps to Preventing Embezzlement.