The Expert Podcast

So why do people embezzle money and what causes a person in a company or an employee to steal from their employer, to divert funds, or to just generally commit embezzlement?

Well, there's a four-step process for a person to get to the point where they embezzle money. Obviously, the first one usually is that they notice that there's a lot of money flying around. A lot of consumers, employees, individuals are not used to seeing large amounts of money. Their personal budget, you know, might be in the thousands of dollars. They might, in their bank account, have a few thousand dollars, maybe ten thousand dollars, and they pay their rent, their mortgage, their car payments. So they're seeing numbers flowing through their life in the hundreds or thousands of dollars.

Matter of fact, there's been some studies that were done that most people couldn't put together four thousand dollars if they needed to. Vast majority of people — sixty, seventy percent — couldn't come up with four thousand dollars if needed. So that just gives you an idea of what the scale of their mindset is about looking at money.

So now you work for a company and you see a company processing tens of thousands of dollars or hundreds of thousands of dollars. Some companies sell a hundred thousand dollars a day in sales. They may have bank accounts in the hundreds of thousands or millions. So when a person sees that discrepancy of money, they think — well, it's a psychological effect. They see all this money, and sometimes it changes your mindset. In some cases, it's demoralizing because it puts the person in a sense of, well, they might not be worth anything if they only have a few hundred and other people have hundreds of thousands. So that kind of triggers a mental change.

Then you have what's called the fraud triangle, and the first part of that fraud triangle is the person will discover, sometimes accidentally, that they may have access to some of that money and they didn't know that before. Look, it's one thing to see a big pile of money locked in a vault or hidden behind a big thick glass wall — you don't have access to it. Even if it has an effect on you, you know you can't get it. But if you work in a company and realize, wait a minute, I have access to the company credit card, or I know how they write checks to vendors, or I can do a withdrawal, or I have access to the bank deposit.

Many times the employee discovers that they have access to company resources, capital, or sometimes inventory on accident. You've heard us tell the story before — in one case, we found that a bookkeeper in a company went to pay for gas at the gas station and discovered accidentally they used the company credit card at the gas station, not their personal credit card. And they realized that right after they paid when they went to put it back — "Oh my God, I paid for gas with the company money." They thought they were going to get in trouble, they thought they were going to get fired. But they didn't say anything.

And later on, the bill came in and got paid — nobody noticed it. And they realized, well gee, this is something that nobody is checking on. I have access to this. But they didn't take action just because of that.

You need the other two legs of the fraud triangle. The second one is having some type of a need to take the money. Sometimes it's a financial problem with the employee. Sometimes it's a gambling problem. Maybe, you know, other types of social or moral issues. Sometimes it's a family member who needs money. Sometimes it's just flat-out greed. Greed is a need. You know, if you're greedy and you need other things, that might trigger you.

So first you have — you see all this money. Then you realize you have access to it. Then you have a need to have some of it, to take it. Whether it's a medical issue where you can't afford to pay your medical bills, maybe it's a foreclosure on your house, maybe you can't pay your rent, or something happens. But even then, 99% of employees are not going to embezzle with just those three things.

You're going to need number four.

Number four is what's called entitlement. Number four is when the employee realizes or figures or in their own mind comes up with this idea that they're entitled to this money. And usually it's because they can say, "Well, I was passed over for promotion. I should be making more, so I'm going to take it," or "My boss treated me bad, so it's justified for me to take this money," or it could be that "the world is unfair. My company has a lot of money. I'm gonna take it."

You have to have that mental, moral breakdown of that wall — that moral wall — to justify taking the money. And when we've interviewed fraud suspects and people who have admitted to embezzling, they always say that they never took the money until they got to that point. And sometimes that justification is made up in their own mind to give them an excuse. Sometimes it's perceived to be real.

Many times they feel like they're underpaid, or that they didn't get the raise they wanted, or they have a bad job, or their customers are treating them poorly. That moral justification is the last straw which gets them to the point where they start taking the money.

Many times it's just flat-out greed. They see their neighbors with a nice boat — they want a boat. They steal money to buy a boat.

So embezzlement is a very complicated thing. It's almost always also a very trusted employee, usually a long-term employee. A lot of times, embezzlement is not a new hire, a recent addition to the company. Many times, it's a long-term employee that has been there and trusted for many, many years.

In fact, when we debrief the client — the employer, the company — afterwards, a lot of times they say, "Look, the money was stolen, but our biggest loss is going to be replacing this person. The money we can make back. Obviously, it's not good that we lost it, but we can earn that back, or you know, it's recoverable. But replacing this employee — it was a trusted employee, they had an important job — that's the hardest part."

That's a good reason to prevent this from happening in the first place. Anytime you as an employer can break that chain of those four steps and keep a person from embezzling in the first place, you can retain your money and retain that employee.

A lot of employees in your company would have the propensity to steal if given all those opportunities. So you want to make sure you have good controls, treat your employees well, make sure you don't leave things laying around. Because you don't want to blame yourself as a victim — but on the other hand, if you make it easy or tempting or even likely a person is going to steal, you may turn an average person into a thief without even knowing it.

So be aware of those four reasons for embezzlement and see how that fits into your company corporate culture.