What Is Embezzlement?
Embezzlement is a white-collar crime that consists of someone exploiting their position of trust to take money or valuable property from another person. Embezzlement commonly occurs in the following relationships:
- Employees stealing from their employers
- Financial advisors stealing from their clients
- Tax accountants or bookkeepers stealing from their clients
- Business partners stealing from their jointly owned business
- Lawyers using their clients’ settlement money
- Relatives or carers stealing someone’s Social Security check
One of the key factors in embezzlement is that the embezzler is trusted to handle the asset as a function of their job or position. The victim of embezzlement trusts them and does not expect them to steal.
What Does Embezzlement Look Like?
While we most commonly hear of embezzlement happening in the form of Ponzi schemes or by business partners dipping into company funds, these are not the most common types of embezzlement. Embezzlement most commonly occurs in employee-employer relationships. Most businesses do not report this as it could damage their clients’ trust in the company. Think about it, are you likely to work with a company if you know one of their employees was able to get away with double charging customers or cashing their checks for months? Here are some common types of embezzlement that happen in employee-employer relationships:
- Overcharging customers – The most common type of embezzlement is overcharging customers. They could add in additional products or even increase customer payments by a small amount in order to boost their commissions or siphon off the funds. Another common type of overcharging is to charge the customer twice for the product. This is easy to deny as it could be blamed on glitches in the payment processing software.
- Cashing customer checks – It is also common for employees to cash customer checks directly into their personal accounts or a fake account they set up with a name similar to your company’s. They can do the same with electronic payments and receive them directly into their account instead of your business accounts.
- Forging checks – Most big businesses save time by creating a signature stamp to allow employees in their finance department to pay vendors without needing a senior executive to sign every check. This allows employees to act quickly and prevents bottlenecks from occurring. Unfortunately, it also means that employees receive no oversight in who they are writing the checks to. They may end up writing checks to themselves or to a business owned by them.
How to Avoid These Types of Embezzlement?
If you want to avoid the above types of embezzlement in your business, the best way to do so is to separate the role of handling the money from the role of reconciling the money. This makes it more difficult for an employee to embezzle as they cannot work the books in order to hide their embezzlement.
In addition to separating these roles, you should conduct random audits on a regular basis to try and uncover any mistakes. While mistakes happen from time to time in any business, a pattern of the same person making the same mistake could be embezzlement. This is why you should instruct your audit team to look into the records of an employee if they notice a mistake.
Is Embezzlement a Criminal or Civil Case?
It is both. Embezzlement is a criminal matter, and the state or federal government will put the accused on trial to decide if they are guilty or not guilty. In addition, the victim of embezzlement can also file a civil lawsuit in order to recover damages. The amount of damages a successful plaintiff can recover and the methods of recovery vary in each state. In some states, the plaintiff can put a levy on your bank account, place a lien on your property, or even garnish your wages in order to recover the money.
Embezzlement: Criminal Law
Embezzlement can be either a misdemeanor or a felony, depending on the circumstances. The deciding factor is usually the type of property stolen or the total value of property stolen.
Embezzlement is a misdemeanor if the total value of the property stolen is under $950 or the prosecutor exercises their prosecutorial discretion. If the property is less than $950, then the penalty is up to 6 months in county jail. The defendant may also face fines of up to $1,000. If the prosecutor uses their discretion to file misdemeanor charges instead of felony charges, then the penalty is up to a year in county jail. A judge may use their discretion to sentence summary probation instead of jail time.
Embezzlement is a felony if the total value of the property stolen is above $950 or the property is a firearm or a vehicle. As a felony, embezzlement carries a state prison sentence of up to 3 years. The minimum sentence is usually 16 months, but the judge may order formal probation in some circumstances. They may also face fines of up to $10,000. The judge will use their discretion to determine how long they will sentence a guilty defendant.
If the total value of the property stolen is $50 or less, then embezzlement may be charged as an infraction. The maximum penalty would be a fine of $250 and no jail time or probation. The judge may order community service, therapy, or other support if they see fit.
Legal Defenses to Embezzlement Charges
Embezzlement is a serious crime, and someone charged with embezzlement would benefit from the assistance of a criminal defense lawyer. They will help you to find the best legal defense for your circumstances. Some common legal defenses for embezzlement include:
- The defendant believed that they owned or had a right to the property in question, and this belief is in good faith
- The actions of the defendant were not fraudulent
- The defendant was falsely accused
- The defendant’s intention was not to deprive the owner of the property in question