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 embezzled 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 $10,000. and they pay their rent their mortgage their car payments So they're seeing numbers flow 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. 4,000. if they needed to. Vast majority people, 60 70% couldn't come up with $4,000 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. And sales they may have bank accounts in the hundreds of thousands or millions. So when a person sees that. Discrepancy of money, they think will, it's a psychological effect. They see all this money and sometimes it's, 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. And you've heard us tell the story before. In one case we found that a. bookkeeper and a company went to pay for gas at the gas station and discovered accidentally they use the company credit card at the gas station, not their personal credit card. And. They realized that right after they pay 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, of your social or moral issues. Sometimes it's a family member 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. 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 by company has a lot of money I'm going to 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. As 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 longterm employee. A lot of times embezzlement is not a new hire. A recent addition to the company. Many times it's a longterm 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, or, you know it's 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. That 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 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.