Embezzlement
A financial crime involving deceitful secretion of entrusted assets.
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Embezzlement is a financial crime where someone secretly misuses assets they’ve been entrusted with, often taking money from an employer or business over time. Unlike straightforward theft, the person has legal access to the assets initially, but then converts them to an unauthorized use. This conversion—such as logging checks for one purpose but spending the funds on something else—must interfere with the property, not just move it. The crime’s severity is measured by the loss to the asset’s owners, not the embezzler’s gain.
Embezzlement differs from larceny in three key ways: it requires an actual conversion, the original taking isn’t trespassory (the person had a right to possess or use the assets), and penalties vary. Distinguishing the two can be tricky, especially with employee theft. To prove embezzlement, the state must show the employee had formal control over the goods due to their job—based on title, duties, or company practices.
For instance, a shoe department manager stealing shoes is embezzlement, but stealing cosmetics from another department is larceny. A 2005 North Carolina case, State v. Weaver, highlights this confusion.
There, courts misinterpreted a 1528 English statute, creating a separate “larceny by employee” offense, though the statute’s real purpose was to confirm such acts met common law larceny. This law originally served a colonial economy built on indentured servitude and slavery: it meant a servant or slave owed their labor to a master, and leaving that service unlawfully converted their work into stolen goods. Any new employer knowingly hiring such a person could be charged as an accessory.
Methods
Methods of embezzlement often involve falsifying records to hide the activity. Embezzlers typically take small amounts repeatedly over long periods, though some steal a large sum at once.
Successful schemes can go undetected for years due to the embezzler’s skill in concealing transactions or earning trust. Embezzlement is not the same as skimming, which is under-reporting income and pocketing the difference—as seen in 2005 when Aramark managers under-reported vending machine profits. Small-time embezzlers might falsify records, like removing cash and adjusting the register to appear balanced, leaving the next user short.
Quick Facts
- Type
- Financial crime
- Etymology
- From Anglo-Norman
- from Old French besillier ('to torment, etc.')
- of unknown origin
- Common methods
- Falsification of records
- false vendor accounts
- phantom employees
- Ponzi-like schemes
Facts from the source article.
Lore & Background
Methods of embezzlement include falsifying records, creating false vendor accounts, and creating phantom employees. Some of the most complex forms involve Ponzi-like financial schemes where high returns to early investors are paid from later investors' funds.
The Madoff investment scandal is an example of this kind of high-level embezzlement scheme. Embezzling should not be confused with skimming, which is under-reporting income and pocketing the difference. Prevention includes separation of duties, such as at a movie theatre where one employee sells the ticket and another admits the customer, requiring collusion for embezzlement to go undetected.
Reader's Guide
Embezzlement is significant as a distinct category of financial crime that exploits trust and position. Unlike larceny, it involves lawful possession that is later converted to unauthorized use. The distinction between embezzlement and larceny can be tricky, especially with employee misappropriations.
Courts look at factors such as job title, job description, and operational practices to determine if an employee had sufficient control over goods. The crime often goes undetected for years due to the embezzler's skill in concealing transactions or gaining trust. In 2020, 37% of employee fraud happened because of a lack of internal controls.
Did You Know?
- The Madoff investment scandal is an example of a high-level embezzlement scheme involving $65 billion.
- The word 'embezzlement' comes from Anglo-Norman and Old French 'besillier,' meaning 'to torment,' of unknown origin.
Frequently Asked Questions
What is Embezzlement?
Embezzlement is a financial crime in which a person who has been entrusted with another's money or assets secretly diverts those funds for personal use. It typically unfolds gradually over time, exploiting the trust placed in the offender by a business or employer.
What are Embezzlement's common methods of operation?
Perpetrators rely on tactics such as falsifying accounting records, fabricating vendor invoices, creating phantom employees on the payroll, or running Ponzi-style schemes to mask the missing funds. These techniques let the theft stay hidden while the offender maintains their trusted position.
How does Embezzlement differ from Larceny?
Three key distinctions separate them: embezzlement requires an actual conversion of property that was lawfully obtained, the initial taking must not be trespassory, and the criminal penalties applied are different. In short, the offender already had legitimate access to the assets before misappropriating them.
Where does the name Embezzlement come from?
The term traces back through Anglo-Norman to the Old French word besillier, meaning 'to torment' or 'to distress,' though the ultimate origin of that Old French root remains uncertain. The etymology reflects the historical view of the crime as a form of torment inflicted on the victim by a trusted party.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Embezzlement (CC BY-SA 4.0).
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