Define embezzlement in financial institutions:
How we can define Embezzlement? and what does embezzlement mean in fraud cases?
Define embezzlement in fraud careers is specific as the wrongful taking or conversion of the property of another by a person to whom it has been lawfully entrusted (or to whom lawful possession was given). Misapplication of bank funds can define embezzlement in which bank employees wrongfully take or convert another party’s property for the benefit of the employee or someone else.
Embezzlement examples and Schemes:
There are various schemes which can define embezzlement that have been used over time against financial institutions and their customers. The following embezzlement examples are not an exhaustive list, but are rather a summary of the more commonly employed schemes explaining what does embezzlement mean.
False Accounting Entries define embezzlement:
We can explain what does embezzlement mean if some employees are in positions of trust in which they have the ability to use or relocate funds on behalf of customers or the financial institution itself. In false accounting entry schemes, employees define embezzlement by debiting the general ledger to credit their own accounts or cover up a theft from a customer account.
Suspense Account Schemes define embezzlement:
A suspense account refers to the section of an organization’s books where unclassified debits and credits are recorded. Placing an entry in a suspense account is designed to be a temporary measure, pending the ultimate disposition of the transaction. Employees often use suspense accounts to define embezzlement and perpetrate fraud against their employer at both financial institutions and other types of organizations. However, financial institutions make heavy use of various types of suspense accounts, making such schemes of Embezzlement examples a unique fraud risk in this industry.
In a suspense account Embezzlement examples scheme, the employee define embezzlement by making a fictitious debit entry to a suspense account and offsets the entry with a credit to an end point - a means to remove funds from the financial institution - under the control of the individual (e.g., a checking account, an official cheque account, or a wire account). These entries are continuously cleared by future, and often increasingly large, fictitious debit entries (similar to a lapping scheme).
There are several types of suspense accounts at financial institutions that fraudsters might use to define embezzlement including:
- Loans in process;
- Interdepartmental transfers;
- Currency in transit;
- Refunds on insufficient funds charges;
- Due from banks;
- False or Unauthorized Transfers from Internal Accounts define embezzlement
There are several types of normal transfers which define embezzlement by using internal accounts, especially in operating account and general ledger account transactions. A person with the ability to make such transactions might substitute a personal account for one of the internal accounts.
Unauthorised Withdrawals define embezzlement:
In a relatively Embezzlement examples scheme, employees make unauthorized withdrawals from customer accounts. These Embezzlement examples schemes are hard to conceal because the customer will complain, but the subject might define embezzlement by planning to flee once the funds are transferred or target a customer who is unlikely to notice the missing funds right away.
Unauthorized Disbursement of Funds to Outsiders define embezzlement:
Additionally, we can define embezzlement if employees might abuse their authority to approve fraudulent (counterfeit, forged, stolen, etc.) instruments or otherwise make an unauthorized disbursement of funds to an outsider. While the employee often has a financial incentive for doing so, there have been many cases where the employee define embezzlement and made an improper disbursement in a misguided attempt to be cooperative with customers.
Paying Personal Expenses from Bank Funds define embezzlement:
An officer or employee causes the bank to pay personal bills and then causes amounts to be charged to bank expense accounts.
Theft of Physical Property define embezzlement:
Embezzlement examples is clear if employees or contractors remove office equipment, building materials, and furnishings from bank premises.
Moving Money from Customers Inactive Accounts define embezzlement:
Persons with apparent authority can define embezzlement by creating journal entries or transferring orders not initiated by customers to move money among accounts. The accounts used to define embezzlement are typically dormant or inactive accounts, which are those accounts that show little or no activity. Often, this embezzlement examples are occurred when contact with the account holder by confirmation, letter, or telephone contact is not possible. Such accounts are to be transferred to dual control and recorded in an inactive accounts ledger. Dormant funds are highly susceptible to define embezzlement.
The rationale is that funds embezzled from active accounts are likely to be missed quickly, while dormant account holders are less likely to report problems. Many financial institutions lock dormant accounts after a certain time period (e.g., one year of inactivity), requiring manual override to conduct additional transactions. However, this process can be manipulated. Typically, the perpetrator first identifies accounts that are or are about to be dormant to define embezzlement. Next, he might somehow manipulate the account to make it appear that it is not dormant, such as by creating a nominal and fictitious transaction. Then, the employee creates journal entries or transfer orders to move the funds into an account that the employee controls (often a shell Organization).
Unauthorized, Unrecorded Cash Payments define embezzlement:
We can understand also what does embezzlement mean if a director, officer, or employee causes cash to be disbursed directly to himself or accomplices and does not record the disbursements.
Theft and Other Unauthorized Use of Collateral define embezzlement:
The embezzlement examples is clear too if Custodians steal, sell, or use collateral or repossessed property for themselves or accomplices.
Skimming of Irregular Receivables define embezzlement:
As with any organization, a financial institution’s receivables are vulnerable to skimming schemes and define embezzlement in which the fraudster intercepts incoming payments before they are entered into the institution’s books. The nature of financial accounts creates some unique risks due to the relatively large proportion of irregular accounts receivable. Receivables that are long past due or that have already have been written off are prime targets for fraudsters because no one is surprised when those funds never show up in the books.
Detection embezzlement examples Methods:
There are several methods by which embezzlement examples can be detected. Generally, if the dollar amount of the embezzlement scheme is small enough such that the financial statements will not be materially affected, define embezzlement fraud can be most effectively detected through the review of source documents (i.e., receipts, deposit slips, etc.). There can be many types of clues in the source documents to define embezzlement, and often the particular situation will determine what does embezzlement mean and what the fraud examiner needs to look for. The following are common red flags in source documents that might indicate that embezzlement examples has occurred:
- Missing source documents;
- Payees on source documents do not match entries in the general ledger;
- Receipts or invoices lack professional quality;
- Duplicate payment documents;
- Payee identification information that matches an employee’s information or that of his relatives;
- Apparent signs of alteration to source documents;
- Lack of original source documents (photocopies only).
If the embezzlement examples scheme is so large that the institution’s financial statements are affected, then a review of the source documents will serve to confirm or refute an allegation that an embezzlement examples scheme has occurred or is occurring. Generally, for large embezzlement examples, the most efficient method of define embezzlement and detection is an analysis of the financial statements (which is also a review of documents). Some common suspicious items in financial statements are:
- An abnormal increase in accounts receivables that are past due or written off;
- Master accounts that do not equal the sum of their individual customer accounts;
- Excessive voids or credits;
- An abnormal increase in reconciling items.
Many embezzlement examples frauds are detected when the financial institution regularly conducts reconciliation to understand what does embezzlement mean. It is also important to conduct independent review of high-risk accounts, such as new customer accounts and suspense accounts.