Compliance Glossary

Embezzlement

When an individual is given access to an organization’s funds or assets, there is an expectation that the individual will protect those assets in the best interests of the organization and use them only for their intended purpose. If the individual takes those assets for personal use, it is known as embezzlement.

What is Embezzlement?

Embezzlement is a white-collar crime that takes place when an individual entrusted with property, money, or another asset dishonestly appropriates that resource for their own personal use. The act of embezzlement constitutes a breach of fiduciary responsibility in the context of a principal-agent relationship.

Embezzlement is codified as a felony under the United States Code, Title 18, Chapter 31, in the following sections:

  • Section 656 – Theft, embezzlement, or misapplication by bank officer or employee
  • Section 664 – Theft or embezzlement from employee benefit plan
  • Section 665 – Theft or embezzlement from employment and training funds; improper inducement; obstruction of investigations
  • Section 669 – Theft or embezzlement in connection with health care

Penalties for embezzlement can include fines of up to $250,000 and prison terms of up to ten years.

What is the Difference Between Embezzlement and Theft?

Embezzlement is a special kind of property theft, but embezzlement and theft are not the same thing. 

A theft happens when an individual takes property that does not belong to them for their own personal gain. 

Embezzlement also requires the individual to seize property for their own personal gain, but the key difference in cases of embezzlement is that the individual had legal access to the property and a fiduciary duty to safeguard the property in accordance with the wishes of the property owner and the requirements of their role. 

Acts of embezzlement combine the theft of property with the violation of the fiduciary duty and trust inherent in a principal-agent relationship.

Is Embezzlement Hard to Prove?

To prove embezzlement, a prosecutor must demonstrate that the following four elements are satisfied by the facts of the case:

  1. There was a fiduciary relationship between the individual and the organization from which the property was appropriated;
  2. The individual was given access to the property by virtue of their employment;
  3. The defendant did, in fact, fraudulently convert or appropriate the property for their own personal use; and
  4. The defendant intended to deprive the organization of its rightful property.

Whether embezzlement is difficult to prove depends on the availability of evidence and the specific facts of the case. 

What are Some Examples of Embezzlement?

Individual acts of embezzlement vary widely in their scope of impact, with some involving just a few dollars while others involve thousands or even millions. Listed below are several examples of embezzlement from a variety of contexts:

  • Scott works as a cashier at a boutique store that only takes cash. At the end of his shift, Scott takes $20 from the register without telling his manager. He uses the money to buy dinner on the way home.
  • Sally works as an administrative assistant in an office where she’s a keyholder for the supply closet. When Sally’s child needs school supplies, she takes them from the supply closet instead of buying them at the store.
  • Bernie Madoff famously ran a ponzi scheme that defrauded investors of billions of dollars. Operating a ponzi scheme is considered a form of embezzlement.
  • Greg is a project manager for a construction firm. He awards a contract to his friends at 20% above the market rate, then accepts a 10% kickback to his personal bank account.

While these examples are very different in their scope, each one includes all of the critical elements of an embezzlement crime: fiduciary responsibility, legal access to property, property theft, and intent.

What is the Most Common Form of Embezzlement?

The most common form of embezzlement is simple cash skimming. Employees who handle cash directly, such as cashiers, servers, bartenders, or delivery drivers can embezzle funds by destroying or falsifying transaction records and pocketing the cash.

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