Embezzlement occurs when employees steal from a company. Whereas theft and larceny involve an outsider’s taking funds or property, embezzlement is the misappropriation of funds or ASSETS by someone within an organization. Most business owners actively work to reduce shoplifting (called shrink, short for inventory shrinkage, by retailers), but fewer businesses develop policies and strategies to reduce embezzlement. Almost any business is vulnerable to embezzlement. Experts report that it most often occurs in financial institutions and small businesses. A typical case of embezzlement involves a bookkeeper who, using multiple accounts, electronic transfers of funds, and phony paperwork, removes funds from the company into his or her own accounts. Once established, an embezzler can repeatedly extract funds, covering his acts with receipts and accounting transfers. This type of WHITE-COLLAR crime is rarely prosecuted and often repeated at subsequent places of EMPLOYMENT. Logically, a thorough review of references would prevent embezzlers from repeating their crimes, but given the potential LIABILITY associated with a negative reference and without a criminal conviction, former employers usually will volunteer little information beyond dates of employment. To reduce embezzlement, experts recommend establishing
• policies and procedures regarding cash-handling and internal accounting controls, and rotating responsibilities in sensitive areas where embezzlement is most likely to occur, segregating office shipping, sales, and bookkeeping functions
• a code of conduct for personnel, including notice the company will conduct periodic credit checks on employees and all applicants
• a documentation system that restricts access to FINANCIAL INSTRUMENTS allowing transfer of funds and an AUDITING system to ensure accuracy of information
• control of access to facilities, including having a least two people open and close the facility, and documentation of who has keys, security, and alarm-system information
• review of a fidelity bonding company’s reputation and performance
One of the largest cases of embezzlement in the United States involved a group of executives in Phar-mor, a chain of retail drug stores. In 1992 the company lost $350 million in a FRAUD and embezzlement scheme. The company was forced into Chapter 11 bankruptcy protection, fired 16,000 employees, and closed 200 stores to recover from the crime.