Saturday Brain Storming Thought (148) 15/01/2022
Embezzlement in Real Estate
This is an offense where someone defrauds another person out of money or property. Embezzlement occurs when someone steals or misappropriates what they were entrusted to manage or safeguard. The property or asset need not be substantial value for embezzlement to occur.
Key Takeaways of Embezzlement
1) Embezzlement takes place when a person uses funds for a different purpose than they 2ere intended to be used
2) Embezzlers might create bills and receipts for activities that did not occur and then use the money paid for personal expenses
3) ponzi schemes are an example of embezzlement
4) businesses lost approximately £400 billion each year to theft
5) Embezzlers can be held civilly and criminally responsible for their crimes
Meaning of Ponzy Schemes
A form of fraud in which belief in the success of a non-existant enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors
A classic Ponzy Scheme built on treachery and lies
Legally proving of Embezzlement
To legally prove embezzlement, the claimant must prove that the perpetrator had a fiduciary responsibility to the victim and that the embezzled asset was acquired through that relationship and conveyed to the accused intentionally
Punishment for Embezzlement
A person can be held civilly and criminally responsible for embezzling
Punishments range from monetary fines and restitution to imprisonment
Examples of Embezzlement
Embezzlement is a white-collar crime where employees withhold or misappropriate funds or assets assigned to them
Stealing cash and the misuse of corporate credit cards for personal purchases are the most common forms of embezzlement
Features of Embezzlement
Silent features of this fraud are as follows
1) the asset is owned by the owner or employer and not the embezzler
2) the employer authorised the embezzler to perform transactions for day-to-day business operations
3) the most crucial element in embezzlement is trust
4) the employer highly trusts the employee or embezzler, practically most business hierarchies cannot function without some level of trust
5) Embezzlers are very aware of their actions and commit the crime intentionally
Types of Embezzlement
1) Cash skimming or siphoning
Most embezzlers who handle cash counters and front offices do the fraud
They keep some cash from the customers and deliberately omit recording the transaction in the computer system
2) Kickbacks
Another illegal way employees make money is by conspiring with a vendor
On behalf of the firm, the employee makes high-price purchases that benefit the vendor, a co-conspirator
In lieu of illegal profits, the embezzler extracts a margin
3) Cheque Kiting
Frqudstere intentionally write a cheque for a value greater than the account balance
Then they write a new cheque from another account in another bank, again with insufficient funds
The second cheque server to cover the non-existent funds from the first account
The fraudsters falsely inflate the balance of a checking account to prevent the bouncing of cheques
4) Payroll
The Embezzlers in the HR department of labour-intensive companies often enter the names of family members or friends in the employee registry
By doing so, they draw money against counterfeit paycheques
5) Overtime
Some employees who are allowed take undue advantages of the same by punching out the attendance late or punching in early despite not working for additional hours
6) Lapping
Such misconduct occurs when companies authorize employees to accept bearer cheques or cash payments from customers
The entrusted person commits fraud by redeeming the cheque in the personal account instead of companies account
Effects of Embezzlement
1) an embezzler breaks the trust of the employer
2) employer faces monetary or asset loss on top of time erosion caused by legal proceedings
3) such mishaps can push employer to become suspicious of all employees
4) such misdeeds disrupt internal administration
5) making it essential to have a robust control system within the organization
6) the manipulation of accounts leads to false reporting of corporate performance
7) it can ruin the brand image and existing deals with customers
8) if embezzlement becomes public, the shares of a listed company can dip
Preventing of Embezzlement
1) instead of entrusting a single person, financial tasks can be entrusted to a team of employees
2) firms should insure against employee theft and carry out frequent internal audits
3) firms should maintain the confidentiality of financial information
4) during recruitment, employees background and personal information should be vetted thoroughly
5) firms have to impose specific policies and laws against financial misappropriation
Warning signs of Embezzlement
1) missing financial documents
2) vendors complaining that they were never paid
3) customers claiming that they already paid a bill
4) payment issues ie financial department send out duplicate payments often
5) unusual checks ie evidence of cheque tampering
6) odd transactions ie sending an extra payment to vendors or time required to clear the bills
7) shrinking profitd
8) cash is disappearing
9) strange or long working hours by employees
10) never taking time off by employees
11) insisting on working alone
12) possessive attitude
13) financial distress ie financial mishaps happens due to greed, Divorse, debt or medical emergencies of employees
14) living above their means
15) testing fraud controls
16) attempting to access restricted areas or information
17) signs of addictions
Cash management software makes it easy to track and manage embezzlement investigations and report on results for better prevention of embezzlement
Never assume an employee is guilty of embezzlement
Precautions to be taken after the suspect of embezzlement
1) Do call your lawyer
2) do not alert your staff
3) do bring in outside advisors
4) do not bring in those advisors during the workday
5) do communicate carefully
6) do not contract law enforcement yet – this will panic your staff and make it much harder for you to catch embezzler
7) do keep your emotions in check
8) do not make changes to your banking, vendors or systems
Who usually commits embezzlement
1) more than 70% of Embezzlers are men
2) more than half are between the ages of 31 to 45 years old
3) most have never previously been charged with a criminal offence
4) they are more likely to be employed in operations, accounting, sales or upper management
Embezzlement of property held in trust
1) borrowing money from a sports league or civic organization’s bank account
2) adjusting the books to hide a misappropriation of funds
3) using a clients lawsuit award to pay operating expenses
4) selling property and pocketing the proceeds without accounting for it to heirs
5) using a child or relative’s social security check
6) setting up a check or credit card kiting scheme
7) stealing money through Ponzy scheme
Punishment for embezzlement in India
Section 420 in the Indian Penal Code deals with cheating and dishonesty inducing delivery of property
The maximum punishment which can be awarded under this section is imprisonment for a term of 7 years and fine
Embezzlement in law
Embezzlement is the fraudulent appropriation of a property by a person to whom such property has been entrusted, or into whose hands it has lawfully comes
Embezzlement is a form of theft and it is usually charged as theft
Lack of internal controls and override of existing controls contribute to half of embezzlement
Compiled by:-
Avinash Kulkarni
Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer
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