If you have been the victim of fraud or embezzlement, it is crucial that you act quickly to recover your money and preserve your rights. Now is the time when experience matters. Lustig & Wickert has successfully handled numerous fraud and embezzlement cases and can answer your questions and provide you with a strategic plan to recover your money
Embezzlement is the act of withholding assets for the purpose of conversion (theft) of such assets, by one or more persons to whom the assets were entrusted to be held or used for specific purposes. Embezzlement is a type of financial fraud. For example, a lawyer might embezzle funds from the trust accounts of their clients; a financial advisor might embezzle the funds of investors; a trusted employee or partner might embezzle funds from a bank account, take improper expense reimbursements, or charge improper expenses to the company credit card.
Embezzlement is a premeditated crime, performed methodically, with precautions that conceal the theft of the property and which occurs without the knowledge or consent of the affected person. Often it involves the trusted individual embezzling only a small proportion of the total of the funds or resources they control, in an attempt to minimize the risk of detection of the theft. When successful, embezzlement may continue for many years without detection. The victims often realize that the funds are missing and that they have been duped by the embezzler, only when a relatively amount of cash is needed at one time; the funds are called upon for another use; or when a major institutional event, such as a reorganization (the closing or moving of a plant or business office, or a merger/acquisition, purchase or sale of a firm) requires the complete and independent accounting of all real and liquid assets.
In the United States, embezzlement is a statutory offense that, depending on the circumstances, may be a crime under state law, federal law, or both. Typically, the criminal elements of embezzlement are the fraudulent conversion of the property of another person by a person who has lawful possession of the property.
Methods of Embezzlement
Embezzlement sometimes involves falsification of records in order to conceal the activity. Embezzlers commonly steal relatively small amounts repeatedly, in a systematic or methodical manner, over a long period of time, although some embezzlers steal one large sum at once. Some very successful embezzlement schemes have continued for many years before being detected due to the skill of the embezzler in concealing the nature of the transactions or their skill in gaining the trust and confidence of employers, investors or clients, who are then reluctant to “test” the embezzler’s trustworthiness by forcing a withdrawal of funds.
Embezzling should not be confused with skimming, which is under-reporting income and pocketing the difference. For example, in 2005, several managers of the service provider Aramark were found to be under-reporting profits from a string of vending machine locations in the eastern United States. While the amount stolen from each machine was relatively small, the total amount taken from many machines over a length of time was very large. A smart technique employed by many small-time embezzlers can be covered by falsifying the records. (Example, by removing a small amount of money and falsifying the records, the register would be technically correct, while the manager would remove the profit and leave the float in, this method would effectively make the register short for the next user and throw the blame onto them)
Another method is to create a false vendor account and supply false invoices to the company being embezzled so that the checks that are cut appear completely legitimate. Yet another method is to create phantom employees, who are then paid with payroll checks.
The latter two methods should be uncovered by routine audits, but often aren’t if the audit is not sufficiently in-depth, because the paperwork appears to be in order. A publicly traded company must change auditors and audit companies every five years. The first method is easier to detect if all transactions are by check or other instrument, but if many transactions are in cash, it is much more difficult to identify. Employers have developed a number of strategies to deal with this problem. In fact, cash registers were invented just for this reason.
Some of the most complex (and potentially most lucrative) forms of embezzlement involve Ponzi-like financial schemes where high returns to early investors are paid out of funds received from later investors duped into believing they are themselves receiving entry into a high-return investment scheme. The Madoff investment scandal is an example of this kind of high-level embezzlement scheme, where it is alleged that $65 billion was siphoned off from gullible investors and financial institutions.
Safeguards Against Embezzlement
Internal controls such as separation of duties are common defenses against embezzlement. For example, at a movie theater, the task of accepting money and admitting customers into the theater is typically broken up into two jobs. One employee sells the ticket, and another employee takes the ticket and lets the customer into the theater. Because a ticket cannot be printed without entering the sale into the computer (or, in earlier times, without using up a serial-numbered printed ticket), and the customer cannot enter the theater without a ticket, both of these employees would have to collude in order for embezzlement to go undetected. This significantly reduces the chance of theft, because of the added difficulty in arranging such a conspiracy and the likely need to split the proceeds between the two employees, which reduces the payoff for each.
Another obvious method to deter embezzlement is to regularly and unexpectedly move funds from one advisor or entrusted person to another when the funds are supposed to be available for withdrawal or use, to ensure that the full amount of the funds is available and no fraction of the savings has been embezzled by the person to whom the funds or savings have been entrusted.
In the daily crush of business, we take shortcuts. We want to trust those that we have placed our trust in. Often, when the embezzler is unmasked, the first reaction is often “it can’t be” or “you must be kidding”. No one sees it coming. That is because the embezzler has somehow earned your trust and confidence. Remember that the word “Con” owes its origin to the word “confidence”.
When confronted with a strong suspicion that a embezzlement has occurred, you need to move quickly and decisively. Most important is the goal of limiting further losses, obtaining evidence and preserving evidence. However, equally important is the goal of recovering the money that has been stolen. In certain cases, an employer would also be entitled to receive back all salary and other compensation it paid to the employee while he was stealing from them. The success or failure of the recovery effort is often influenced by how long it took the employer to decide to act.
Lustig & Wickert’s experience in handling numerous fraud and embezzlement cases gives us insight into what happened, how it happened, how to stop the fraud or embezzlement while preserving the evidence and your rights. We know what works and what doesn’t. We have resources available for things like private investigators, forensic accounting, IT, data reconstruction and data recovery that are sometimes required. Under certain circumstances, we may even be able to freeze the embezzlers assets before they can sell or transfer them. It is much more difficult to find and chase stolen assets once they have been moved. Lustig & Wickert also has vast experience working with Federal and State law enforcement agencies investigating fraud and embezzlement. We have also been successful in claims by our clients against their commercial insurance carriers for coverage of the loss.
Know this; that time is not your friend when you have been defrauded or embezzled. The quicker you act, the more likely it is that you will stop further losses and recover that which was taken from you. Call or email us today for a free and confidential consultation.