Embezzlement

SIGNIFICANCE: Embezzlement is a widespread crime that involves significant financial loss.

Embezzlement was first recognized as a distinct crime to include misdeeds by servants and clerks in England in 1799. Common law had failed to cover instances in which property or financial assets were entrusted to the care of another person or employee by the owner and then stolen or misappropriated. Earlier larceny laws required that the property be removed from another’s possession, which necessitated that the offender take direct possession and walk off with the purloined article. Statutes also were passed in the United States that defined embezzlement as a felony delineated from theft based on the violation of trust that accompanies the conversion of the property. An office worker, for example, stealing supplies to keep and use at home is committing larceny, whereas a bookkeeper in the same office who siphons money from accounts receivable is committing embezzlement.

Embezzlement as a traditional white-collar crime is less clearly defined because in many cases the offender may lack a prestigious position and actually holds a lower-level job. The key element in embezzlement that categorizes the act as a white-collar crime is the violation of trust. Collective embezzlement, unlike other schemes, clearly represents a type of white-collar crime that emerged in the savings and loan scandal of the 1980s and refers to the embezzlement of funds, often with management involvement, from a financial institution for personal gain.

Motivations and Offender Characteristics

Early attributes and stereotypes suggested for why men in particular committed the crime of embezzlement included the so-called three Ws: wine, women, and wagering, or the even more colloquial three Rs: rum, redheads, and racehorses. In short, the failure to control one's alcohol intake, sexual desire, or gambling, resulting in the need for more money to sustain such habits, was long seen as the primary reason to embezzle. Such simplistic motivations of embezzlers, however, cannot always fully explain the deeper factors beneath their actions. The crime has come under intense scrutiny as scholars, legal professionals, and victims attempt to understand why long-term, trusted, often well-paid employees risk their positions for financial gain. Research shows that complex psychosocial factors such as gambling, extravagant lifestyles, drug addictions, and personal problems often provide the impetus for embezzlement.

Donald Cressey’s 1953 study stands out as one of the most respected and cited research efforts on the actions and motives of embezzlers. Cressey interviewed 502 prison inmates who were identified as violators of trust; Cressey identified a specific process that occurs among embezzlers. First, employees are faced with financial problems that they cannot share with family or friends. Second, opportunities present themselves for solving the problems undetected. Third, the embezzlers rationalize their acts as "borrowing" to avoid internalizing a criminal identity.

Embezzlement schemes may be seen initially by the employees as borrowing money that they have every intention of repaying. Some embezzlers rationalize their behavior by claiming that their employers owe them money, or they may be disgruntled and seeking revenge against perceived unfairness in the workplace. Lifestyle improvements for most embezzlers create a downward spiral as they continue to steal, and any type of financial recovery or repayment becomes impossible. No business is immune from embezzlement, including small private organizations, major corporations, banks, and charity and nonprofit enterprises. Schemes for carrying out the crime vary tremendously, including, for example, pocketing cash, padding expense accounts, juggling billing, falsifying inventory, or manipulating payroll.

Despite the traditional focus on embezzlement from a male perspective, the involvement of women in the crime is significant. Statistics show a dramatic increase in the number of women convicted of felonies involving fraud. In 1996 the Bureau of Justice Statistics found that women represented 41 percent of all felons convicted of forgery, fraud, and embezzlement. According to Fraud Intelligence in 2023, Dr. David P. Weber, a professor at Perdue School of Business and a former assistant inspector general for investigations for the US Securities and Exchange Commission (SEC) has conducted research showing that more women than men were convicted of embezzlement in the United States from 2007 to 2017. Major studies of women embezzlers suggest that women steal less money and have unique motives compared with men. The justifications used by women embezzlers tend to emphasize less greed, and the crime is more likely committed to meet the needs of family members. In one unusual case, a woman who had embezzled thirty thousand dollars used the ill-gotten gains to give fellow employees raises. The involvement of a high number of women may be related to the shift of family and career responsibilities as more women become sole providers for their children and acquire higher-level positions in the corporate world. In most studies, however, the majority of women embezzlers were found to hold clerical positions.

Prevalence

Embezzlement is among the fastest-growing crimes in the United States, showing an increase of 38 percent from just 1984 to 1993 according to Federal Bureau of Investigation (FBI) reports. Marquet International found that in 2012 embezzlement cases had grown by 10 percent annually since 2010, with 2012 marking a five-year high point with $735 million stolen in cases leading to an arrest or indictment. Embezzlement is listed as a Type II nonindex offense in the FBI’s Uniform Crime Reports. Consequently, only arrests reported by state and local police departments are counted, and the incident rate includes a variety of trust violators. Losses from embezzlement range from conservative estimates of $4 billion to extreme projections of $400 billion.

Less arguable particulars of the crime are that profits are large and risks of apprehension are low. Commentators have compared the average take of a bank robbery of about $3,000, whereas an embezzler averages around $40,000. The National White Collar Crime Center estimates that employee thefts range from $20 billion to $90 billion annually and may account for 30 percent to 50 percent of all business failures. New technologies offer easier manipulation and have contributed to an increase in embezzlement. The noted 56 percent increase in arrests from 1983 to 1992 is attributed mainly to the use of computers, and improved technology in the twenty-first century has in many ways only made it easier for embezzlers to operate undetected. The average embezzlement is estimated at $25,000, compared to computer-assisted acts at $430,000.

Investigation

Embezzlement is difficult to detect, and when successfully prosecuted, the punishment is generally more lenient than that for street-level offenses. Detecting and investigating embezzlement presents a difficult task for employers and law-enforcement agencies. Generally, the suspected employee is trusted and has a long, impeccable history with the company. Additionally, initial suspicions usually are based on circumstantial evidence that may or may not point directly to any one employee. The crime is more likely to be discovered during the later stages, as small amounts of stolen money accumulate into sizable sums. Company executives and business owners, who are often embarrassed by the loss of funds, are reluctant to report the theft to the authorities, and the situation is handled internally. Undetected and unreported incidents contribute to estimates that less than 50 percent of the employees who embezzle are arrested and prosecuted.

Initially, companies turn to an internal investigation and may employ legal counsel, forensic accountants, computer data specialists, and auditors. Publicly held companies are under greater scrutiny because executive officers must comply with securities law and fiduciary obligations. The expertise needed to gather evidence varies according to the size and complexity of the crime. Bank embezzlement schemes, which are difficult to unravel, for example, may be committed by nearly two hundred different methods.

Investigators rarely are able to find a clear paper trail because records are incomplete, missing, altered, or destroyed. The first step in any investigation is to identify the person with means and opportunity. Employers may use polygraph tests and credit checks, though internal investigators are limited by the Employee Polygraph Protection Act and the Fair Credit Reporting Act. Unwarranted or unproven accusations of embezzlement can result in defamation claims by the targeted employee.

Prosecution and Punishment

Civil actions against embezzlers represent an alternative to criminal prosecution and allow businesses to recoup losses. The expensive costs of litigation and limited assets of the wrongdoers, however, are prohibitive. Criminal proceedings are being pursued in a rising number of cases as attitudes toward financial crime become more punitive. Prosecution is a challenge, and many elements of the cases (motive, means, and opportunity) are difficult to prove. Motives are varied and include nonfinancial reasons. Prosecutors must prove that the defendants fraudulently appropriated money or property that was entrusted to their care for their own benefit.

Convicted embezzlers generally face short prison sentences. Often, restitution is part of the sentencing, but the amounts pale in comparison to what was stolen. For example, after submitting phony expense reports and bills from an imaginary contractor, General Telephone and Electronics (GTE) managers were convicted of embezzling $1.3 million. The executives involved were sentenced to forty-one months in a federal prison and ordered to pay restitution of $355,685. An Ohio executive for the American Cancer Society was found guilty of stealing more than $7 million and was sentenced to thirteen-and-a-half years and $593,000 in restitution.

Bibliography

Beagan, Edward A., et al. Embezzlement 101. Boston: MCLE New England, 2015. Print.

Cressey, Donald. Other People’s Money. Glencoe, Ill.: The Free Press, 1953. Print.

Fastenberg, Dan. "Embezzlement Cases at a 5-Year High, Report Finds." AOL Jobs. AOL, 2013. Web. 16 Dec. 2015.

"More Than Equal--Female Financial Criminals." Fraud Intelligence, 19 July 2023, www.counter-fraud.com/skills-and-tools/psychology-and-profiling/more-than-equal--female-financial-criminals-154377.htm. Accessed 26 June 2024.

Pink-Collar Crime. Washington & Lee U, 2015. Web. 16 Dec. 2015.

Rosoff, Stephen M., Henry Pontell, and Robert H. Tillman. Profit Without Honor: White-Collar Crime and the Looting of America. Upper Saddle River, N.J.: Prentice-Hall, 2004. Print.

Shichor, David, Larry Gaines, and Richard Ball, eds. Readings in White-Collar Crime. Prospect Heights, Ill.: Waveland Press, 2002. Print.

Sifakis, Carl. Frauds, Deceptions, and Swindles. New York: Checkmark Books, 2001. Print.

Zietz, Dorothy. Women Who Embezzle or Defraud. New York: Praeger, 1981. Print.