Embezzlement involves funds being stolen by someone in whose hands they were trusted, such as a business partner or employee.
This type of fraud can cost businesses a fortune, while destroying working relationships and stalling business operations. Classified as a major crime, embezzlement involves causing intentional harm to another person.
If you’re dealing with a case of embezzlement, there are important things to know.
In this article, we explore important issues surrounding embezzlement, such as how to spot it, how to prevent it, and what you can do to recover your losses. We’ll also look at when you should contact a lawyer.
What are Common Types of Embezzlement?
There are many ways in which people can embezzle funds. The most common types include:
- Skimming. This involves an individual removing a small amount of money from a financial transaction before it enters the system. By targeting smaller amounts, it can be more challenging for others to notice the fraud.
- Payroll fraud. An employee tries to steal funds by increasing the number of hours they’ve worked on the payroll system or inflating their income.
- Fake invoicing. By creating a fake invoice for goods or services not provided, an individual can get paid money that everyone assumes is legitimate.
- Fake expenses. Employees might claim additional business expenses that are actually personal costs.
- Asset fraud. Embezzlement isn’t always about money. It can involve assets, such as if employees are stealing supplies or other company items.
How Can You Detect Embezzlement?
Embezzlement can be insidious. As a business owner, you might have someone embezzling funds and not even know about it because it involves legally-made money that’s being used for fraudulent purposes.
However, there are ways to identify that embezzlement is happening. Here are some signs.
- Unexplained finances. The money might be seen to be going elsewhere for no good reason.
- Lack of transparency. Employees might be hesitant to provide financial records.
- File corruption. This could be a way for the person embezzling funds to conceal them.
- Employee behavior. Employees are perhaps living beyond their means or struggling financially.
How Can You Prevent Embezzlement?
You can avoid financial fraud in your company by setting a few measures in place.
- Encourage separation of duties. This is when more than one person works on completing a project. It’s a common practice to prevent mistakes and fraud in the company, while keeping people accountable.
- Keep copies of all transactions. Regular, consistent documentation is crucial to check for any errors. This includes keeping credit card transaction receipts and copies of checks.
- Conduct background checks. Before hiring new employees, it’s worth conducting background checks on them so you can verify their documents, such as licenses or certifications, and check all references to ensure the employees are honest.
- Have regular audits. This will enable you to spot any inaccuracies or red flags in the company's finances.
What Should You Do if You’re Dealing with Embezzlement?
If you suspect that an employee is embezzling funds, there are important steps you should take.
Take Time to Collect Information
Try to stay calm and get as much information about the embezzlement as you can. This could involve watching employee behavior and checking financial transactions.
You should try to avoid confronting the suspect because this could cause them to destroy any evidence that can help you build your case.
Conduct an Investigation
Choose to work with an independent accountant to investigate the suspected embezzlement. This will give you an honest assessment, bearing in mind that your in-house accountant might be involved in the fraud.
How Will a Lawyer Help You with Embezzlement?
It’s essential to speak to a lawyer for assistance. They will help you figure out the best options for your specific case while following all the important laws and regulations to ensure compliance.
Hiring a lawyer from ContractsCounsel, an online legal network connecting clients with vetted lawyers on the platform, can help you throughout the entire embezzlement process so that you take the correct action that protects your business reputation and avoids escalation.
Here is how they will assist you:
- A lawyer will conduct internal investigations, working with external professionals to achieve results.
- A lawyer will guide you on the best way to tackle the situation, such as filing a civil lawsuit.
- They’ll work with law enforcement to recover your funds.
- They’ll provide in-depth legal knowledge of your state laws regarding embezzlement, which might be complex.
What are Legal Remedies for Embezzlement?
It’s common for embezzlement to be dealt with by law enforcement agencies, with charges brought to a criminal court. This could include fining the person, forcing restitution to the victim, and even incarceration, depending on the type and seriousness of the fraud.
There are also civil law remedies for victims, in which your lawyer could suggest filing a lawsuit so that you can recover your stolen funds. In civil court, the embezzler could have to return the money or pay interest on the amount.
How is Embezzlement Proven?
It can sometimes be challenging to prove embezzlement in your company. In different states, what’s required to prove that embezzlement occurred can vary, which is why consulting with a lawyer can help.
Usually, however, these factors have to be evident to prove a case of embezzlement:
- Fiduciary relationship. The two parties involved need to have been in a fiduciary relationship, meaning that one party is reliant on the other.
- There should be proof that the defendant achieved the money or asset because of that relationship.
- Intention. It should be proven that the defendant’s behavior was intentional and not an error.
- The defendant must have taken ownership of the stolen items.
Do you need a lawyer for embezzlement?
If you’re dealing with a case of embezzlement, you should consult a lawyer immediately for help with the situation. Hire a lawyer from ContractsCounsel. All lawyers on the platform are professional, vetted, and skilled to assist you recover your funds and protect your interests.
