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, and individuals are not used to seeing large amounts of money in their personal budgets. They might have in their bank account a few thousand dollars maybe $10,000 to pay their rent, their mortgage, and 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. The vast majority of people, 60-70% couldn’t come up with $4,000 if needed it. 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 the company processing tens of thousands of dollars or hundreds of thousands of dollars. Some companies sell a hundred thousand dollars a day and sales may have bank accounts in the hundreds of thousands or millions. So when a person sees that discrepancy in money, 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 while other people have hundreds of thousands. So that kind of triggers a mental change. 

Then you have what’s called the fraud triangle. 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 employees discover that they have access to company resources, capital, or sometimes inventory by accident. And you’ve heard us tell the story before–in one case we found that a bookkeeper at 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 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 in their own mind this idea that, they’re entitled to this money. And usually, it’s because they can say well, I was passed over for a promotion, or 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 and the company has a lot of money so 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 minds 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 that they have a bad job, or that their customers are treating them poorly. That moral justification is the last straw that gets them to the point where they start taking the money. Many times its just flat-out greed. They see their neighbors with a nice boat, they want a boat so they steal money to buy a boat. 

So embezzlement is a very complicated thing. It’s almost always a very trusted employee, usually a long-term employee. A lot of times embezzlement is not a new hire or 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, or the company afterward, 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, it’s recoverable, but replacing this trusted employee is 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 and 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’s corporate culture.