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EMBEZZLEMENT By Sharon Jones December, 2002 Keywords: Embezzlement, Billy Dean Daniels, White-Collar Crimes Without the onset of banking, industrialization and modern society, many more types of embezzlement were possible. The crime of lawfully gaining possession of someone else’s property and later converting it to one’s own use is known as embezzlement. Embezzlement refers to the destruction or fraudulent appropriation of another’s money or merchandise which had been entrusted to one’s care. This crime incorporates a number of different elements. Employees who are caught up in the act of embezzlement describe it as "salvaging", "borrowing", and even "leveling". Embezzlement is not a common-law crime but depends for its existence, on statutory enactments. The principle variation in the state statues is as to the classes of persons subject to the statue. Some limit is to specified clerks and employees: others extend it to other type of agents and to corporate officers. The federal banks make no attempt to define the nature of the offense, but just specify the penalty for that employee. Embezzlement almost always involves some form of breach of trust by one having a position of trust or confidence towards the owner seeing that the embezzler somehow gained possession of the property and then converted it into his possession. Such as, a receiving teller with respect to money in or received through his cage. Also a bank messenger who delivered funds to the teller, then later entering into the cage and took them, would be guilty of larceny rather then embezzlement, because his possession of the funds ended when he delivered them to the teller. If the messenger had taken the funds, before they reached the teller, then that would be considered embezzlement. Most bank embezzlers do not start down the road of corruption until they have worked in banking at least seven years. It is very rare for them to begin at the first year of the job. Types of Embezzlement Other than banking embezzlement there are many types of embezzlement. Cash receipts where an employee can pocket the money received from a customer and then cover the shortage by pulling money from other accounts. A Cashier can sell merchandise and instead of recording the sale and putting the money in the cash register, steal the money and fail to issue a customer receipt. Payroll fraud can occur if checks are issued to fictitious employees and cashed by the person who wrote the paycheck. There is purchasing where a dishonest employee with purchasing authority can issue phony invoices to vendors and then pocket the money that your company paid for undelivered goods or services. Then there is expense reimbursement where employees look out for receipts for untraveled mileage, personal telephone calls, meals, and entertaining "potential customers". Employee fraud occurs when an employee appropriates the business assets for which they entrust him or her. Direct embezzlement consists of the theft of cash or inventory. More sophisticated form of employee embezzlement us the conversion moneys to a bogus company controlled by the employee. Indirect embezzlement typically involves employees taking bribes or kickbacks from vendors or customers. Lack enforcement of internal controls makes direct and indirect embezzlement more probable. The property converted must have come into the suspect’s via a position of trust, commonly called a fiduciary relationship. Employees such as parking lot attendants, auto shop, and bankers occupy such positions of trust (faculty.ncwc.org). The actus reus elements of embezzlement are the same as larceny except that the element of taking is relaxed and the element of breach of trust is added. All that is needed to prove breach of trust is that the property was handled in a manner inconsistent with the trust arrangement. In Moore v. United States, the Supreme Court defined embezzlement as:
To prove the crime of embezzlement under 18 U.S.C. the United States must establish the following elements: there was a trust relationship between the defendant and the private organization or State or local government agency; The property came into the possession or care of the defendant by virtue of his/her employment The defendants dealing with the property constituted a fraudulent conversion or appropriation of it to his/her own use; and The defendant acted with the intent to deprive the owner of the use of this property (usdoj.gov, 1997). Detecting embezzlement may be difficult, identifying the thief may be even more difficult and, for some physicians, taking action against the embezzler and preventing further problems may be even harder. There are many reasons as to why physicians are reluctant to take action against those who steal from them. For fear of: Physicians are very reluctant due to the fact that they consider themselves to be healers first and entrepreneurs second. Physicians are likely known for denial. Not wanting to believe that they never picked up on the clues and caught it earlier, during the hiring process. Regardless an honest employee can turn to theft out of total desperation. After years of trustworthiness, some may begin to steal. There are a few systems that can be used to detect embezzlement: Use bonded employees. Make sure all of your employees who handle practice funds are to be bonded. If a case of embezzlement appears, a company will report your loss and seek recovery from the criminals. True, some employees sense that they will not be prosecuted but the bonding company definitely will seek it. Put procedures in writing. Develop standard operating procedures for cash handling and put then in writing. Develop a handbook and include the procedure and make sure employees have acknowledged it. The more uniformity your systems and routines demand, the more routing your employees actions will become, and the easier it will be to spot irregularities and other problems. Establish individual cash drawers. Give cashiers their own lockable cash drawer, with its own cash fund. Monitor write-off records. All account adjustments should appear on a daily journal and viewed by a supervisor. Monitor other payables. Each check should be accompanied by an invoice that has been verified by the department or employee in the practice who received goods or services. AS with refunds, these checks should be signed by one responsible individual who also periodically spot-checks for endorsements Plant bait. One way to check an employee’s honesty is to plant an extra $10 or $20 bill in their cash drawer, along with the change fund. Right after reconciliation is made and moneys are removed for deposit. See what happens. Don’t rely on your CPA. To discover fraud never rely on your accountant. Regular audits are not designed to discover fraud and embezzlement and most businesses today don’t even get an audit. Just because someone does your tax return doesn’t mean that have any opportunity to discover a fraud. Surprise audits of specific things such as inventory or cash can be a great deterrent to fraud and embezzlement. Experts such as Certified Fraud Examiners can assess your company’s unique fraud and embezzlement and design specific programs to protect your business. (http://www.maineaccounting.com). Set the tone at the top. Employees, who view their leaders as honest people, are more inclined to copy that behavior. The opposite is also true. Do not give employees an excuse to be dishonest. If the supervisor pads their excuse as acceptable so will other workers. If you "borrow" from petty cash so will they. If you charge a personal expense to the business they might as well. (http://www.maineaccounting.com). A physicians practice is his/her business. When a thief steals the business’s money and the patient’s money it burdens the entire system. By not preventing embezzlement the physician encourages it. (http://www.webaafb.org). Crimes in business and the professions can be reduced into two categories: misrepresentation of asset values, and duplicity in the manipulation of power. Misrepresentation is the same as fraud or swindling. Duplicity in the manipulation of power is the same as a double cross. The principle of this duplicity is that the offender holds two hostile positions, one of which is a position of trust that is violated generally by misapplication of funds, in the interest of the other position. (White Collar Crime, p.40). Good people sometimes make mistakes. Especially in difficult times, people do crazy things. When having too many bills and not enough money some feel the authority to get assistance from their employer though their employer does not know anything about it. Even if they intend on repaying the money before it is discovered missing. Resulting in getting caught, even though that had every intention on repaying. White-Collar Crimes White-collar crime is another name for some types of embezzlement. More money is stolen by white-collar criminals than by bank robbers. A white-collar criminal is one who uses illegal business practices to take money that does not belong to him or to her. Even if it does not look like normal stealing, it is just as serious of a crime and you can go to jail for just as long a time as a violent criminal. The theory that criminal behavior in general is due to either poverty or to the psychopathic and sociopath conditions associated with poverty can now be shown to be invalid for three reasons. First, the generalization is based on a biased sample which omits almost entirely the behavior of white-collar criminals. Second, the generalization that criminality is closely associated with poverty obviously does not apply to white-collar criminals. Third, the convential theories do not even explain lower-class criminality.(Mier United States of America v. Billy Dean Daniels Billy Dean Daniels was convicted on one count of embezzling from an employee- benefit plan, and four counts of making false statements on loan applications. Billy raised two arguments an appeal (1) no evidence supported the district courts imposition of a two-level enhancement (2) the district court should have reduced the amounts of loss by the amount reimbursed by his insurance carrier. The undisputed facts showed that Daniels operated ‘Benefits of Columbus, Inc.", a company that supplied self-funded health benefit plans for employees. From July 1988 to April or May 1993, Brooks Auto Parts, Inc. paid BCI monthly installments to cover employee claims and costs. Daniels was to place any excess money in a trust account for Brooks, but he never did so. In the spring of 1993, checks for Brooks health plan began to bounce. Daniels converted $295,359.90 of what was to be used for Brooks health plan into his own. Daniels also fraudently got two bank loans. He received $15, 084 to purchase a horse trailer, using the horse trailer as collateral. In breach of the loan agreement, Daniels sold the horse trailer, used some of the money to pay an insurance company, and he pocketed the rest. Daniels second loan in the amount of 489,098 was to be used to purchase a computer, using the computer as collateral. In actuality he used these loans to pay towards a pre-existing debt with a computer company and to pay insurance premiums. He submitted to the bank a forged letter, stating he had ordered a computer when in fact he had not. His embezzlement of funds from Brooks Auto Parts Inc. health plan occurred over a period of nearly five years. Daniels submission of falsified, and forged letters to the bank were "significant affirmative steps…taken to conceal the offense". Daniel argues on appeal, that the loss should be reduced by $81, 250, the amount his errors-and omissions insurance policy reimbursed Brooks Auto Parts, Inc. This reimbursement to brooks does not change the amount he embezzled, only substitutes Daniels insurance company as a victim as well. He was ordered to reimburse his insurance company as well. The fact that some of the embezzled funds were protected by an insurance policy does not necessarily reduce the calculation of the amount of loss for sentencing purposes. There the case was affirmed. (http://caselaw.lp.findlaw.com). Embezzlement may not be a person-to-person known crime but it affects thousands of businesses daily. Due to the fact that the owners thought that they were able to trust a worker who has been there for years. Now knowing that the worker was plotting the whole time, and being affected by this in the worst way. The way that things are going there will be cases and new about embezzlement because people are becoming smarter about this crime. By watching news and reading things over the internet it becomes easier to learn things and find out how to do things illegally. By having the judges and the law crack down and become tougher with these cases then there will be fewer law breakers. By presenting the law as tougher when it comes to these crimes, others will see this and not dare do the things that these other criminals are doing. References Pratt, L.A. (1965). Bank Frauds: Their Detection and Prevention (2nd ed.). New York: The Ronald Press Company (1997 October). Criminal Resource Manual 1005 Embezzlement. Retrieved November 6, 2002 from http://usdoj.gov/usao/eousa/foia_reading_roon/usam/title9/crm01005.htm Theft Law: Crime Against Property and Hybrid Crimes. (n.d.). Retrieved November 6, 2002, from http://faculty.ncwc.edu/toconnor/293/293/ect//htm U.S. 11th Circuit Court of Appeals. Retrieved November 9, 2002, from http://caselaw.lp.findlaw.com/scripts/getcase Criminal Defense-Fraud and Embezzlement (n.d.). Retrieved November 20,2002 from http://www.the-law.com/criminal_fraud.html Avoid Theft (n.d.). Retrieved November 20,2002 from http://www.maineaccounting.com/Avoid_Embezzlement.htm Smith, W.P. (1997). Tips for Spotting and Stopping Embezzlement. [?] Geis, G., Meier, F. R. (1977). White-Collar Crime: Offenses in Business, Politics, and the Professions (revised ed.) New York. This page available at: |