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It all starts with the smallest financial reverse

January 21, 2020 - 8:00am
David Surdam
Employee theft

Embezzlement—“theft or misappropriation of funds placed in one’s trust or belonging to one’s employer ( dictionary).” 

Embezzlement is a friendly-sounding word, not harsh like “extortion.” Employers, however, have to guard against even trusted employees. The newspapers frequently report long-time employees, who embezzled money over a number of years. In many cases, the employee had overspent, sometimes out of a desire for fancy consumer items and sometimes out of desperation to cover unanticipated medical bills or car repairs.

Benjamin Franklin was famous for his “For want of a nail…a kingdom was lost” verse, whereby a trivial event triggers a dramatic catastrophe. I suspect many cases of embezzlement began with a relatively small expense. Those employees who embezzled large amounts to maintain a lavish lifestyle above their incomes usually had difficulty concealing such a contradiction between lifestyle and salaries.

A seemingly trivial financial reverse is a car breakdown. Many Americans, and not necessarily just people earning low incomes, would have difficulty paying an unexpected car repair. A $750 bill may seem insurmountable to them. Without recourse to friends and families with loanable funds, these Americans may be unable to repair their car and travel to their jobs. An unsympathetic boss might even fire them for missing a shift or two. After a week or two of unemployment (state unemployment payments require a waiting period), the newly-unemployed employee can rack up unpaid expenses. With a little imagination, one can see how such a trivial situation can snowball into a financial crisis.

Facing $1,500 or so in accumulated unpaid bills, people may begin to feel despair. Getting out of such a financial hole on even a $15 or $20 per hour job may be daunting. If a person operates a cash register, he or she may be tempted to skim off money each shift. I once worked for a retail store, and one of the accountants described ways people shortchanged the cash register. Bookkeepers or people authorized to use company checkbooks have access to company funds.

Desperate employees may initially intend to “pay back” the embezzled funds, but events often spiral out of control, as subterfuge succeeds subterfuge to disguise their embezzlement. One can imagine the stress involved in concealing embezzlement for years, as some perpetrators have done.

How can you avoid the temptation to embezzle money? Good money management skills are critical. The advice to maintain three or six months’ worth of living expenses in a liquid account remains sound. There is security knowing that you are prepared to deal with unexpected expenses.

Readers likely know that many employers screen prospective employees’ credit ratings. On the one hand, employees could argue that employer investigations of credit scores are an invasion of employees’ privacy, but a low credit score may signal an employee’s potential temptation to embezzle money.

Many readers of this blog piece may be graduating soon and will experience an upturn in their discretionary income. There are plenty of attractive ways to spend your new income, but I would advise only gradually upgrading your material lifestyle. The author admits to deviating from such advice, having spent money upon graduation to buy a lavish stereo system, and only thereafter starting to save money. Living beneath your means for a few years is easier upon graduation, before you’ve become accustomed to a higher standard of living. Those extra thousands of dollars that you save early on will make you a better credit risk and more attractive employee, as well as give you financial security.

Embezzlement is a friendly sounding word, but it is an insidious breach of ethics. With prudence, you should be able to avoid being tempted to embezzle.

The views and opinions expressed are those of the author and do not imply endorsement by the University of Northern Iowa.


Headshot of David Surdam

David Surdam

David Surdam received his Ph.D. in Economics from the University of Chicago. His dissertation, "Northern Naval Superiority and the Economics of the American Civil War," was supervised by Nobel-Prize Winner, Robert Fogel. Professor Surdam has taught at the University of Chicago, Northwestern University, Loyola University of Chicago, and the University of Oregon.

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Submitted by Alissa Wade on
Within the article above a definitive conclusion is drawn to conclude this post, that embezzlement is an "insidious breach of ethics." While I agree on the point implied that it is wrong to embezzle. The phrase "wording matters" applies to this scenario. Ethics are many things to many different people and can change depending on the context of culture. By using ethics in the broad sense, as it is above, the word ethics implies that this topic could be debated. Ethical approval or disproval implies different actions are permitted or not permitted. Embezzlement in a company should be unthinkable, it is against many goals of business practices to allow and/or overlook embezzlement from an employee. It is not an ethical conversation, for it is not debatable, it is strictly against the goals of businesses. Therefore, I believe that this article would have more impact and depict the true ramifications of this transgression more accurately with different wording.

Submitted by Lexis Powell on
When we learn about embezzlement in school, many of the stories that we hear about are the BIG ones. The ones were the CEO started to realize his company was going over and stole money that wasn't his from the business, or the accountant forging numbers on the books and pockets hundreds to millions of dollars. Personally, I have never thought about the everyday person looking to embezzling for a way to get out of situation. It is an interesting take on the fact that the majority of Americans can not even think about what would happen if a small unexpected expenses pops up. Therefore, these unexpected expenses make people fall down a long path looking for a way out and these are the majority of situations that happen in our economy not the big ones. If you do what you say by saving up for these things, this avoids the temptation and hopefully makes you not even have to worry about it. Great article!

Submitted by Adrienne Tebbe on
When I initially saw this article I was immediately intrigued, I always find it interesting why and how people embezzle. I also thought of Rita Crundwell, who embezzled millions of dollars as a City Comptroller from Dixon, Illinois for 2 decades. There was a documentary on her situation on how she stole millions and really, it was a pretty simple scheme. It boggled my mind on how the city administration or the citizens had no clue where the money was going and how she kept this a secret for this long. As a soon to be graduate, I think examples like this not only teach you the consequences you face, but also warning signs to look out for in company. But, I do like the point of unexpected expenses could make someone embezzle just a couple dollars, and then it becomes a snowball effect. One dollar becomes one hundred dollars, and so on. Fascinating Topic!

Submitted by Colin J Kirchhoff on
This article was quite interesting because it helps remind us how embezzlement is one of the most unethical actions one can do for their company. But also how some people are able to get away with it for years without getting caught. It's something everyone in the company, regardless of position/status should keep an eye out. But I also think it's interesting because it's very relevant for people such as me who will be graduating this May. As stated, we will be given more discretionary income than we have been used to. For me personally, when I saw my starting salary for my job after graduation, my eyebrows lifted off my head. It all comes down to how well you manage this amount of income. I agree that we should still be cheap and "live beneath your needs" as the article had stated. Overall a great, quick read with excellent information!

Submitted by Carter Hartwig on
This is a very interesting blog post about embezzlement and how relatable it is to college kids ready to enter the business world. For someone like myself, I do not know how people can live with the guilt of skimming off a business's register or bank accounts as I would be a nervous wreck if I did something like that. It is always interesting to me how people start stealing minimal amounts and gradually get up to considerable amounts of money over time. A majority of those types of people get comfortable taking little amounts and start taking bigger risks because they believe they won't get caught. Another good point mentioned in the blog post is for postgraduates fresh out of college, should try and live below their means for a couple of years, in order to get a feeling of what it is like making a solid income. I think this is very important but also very hard for a lot of people to do because most college kids are tired of living the "broke" lifestyle and want nicer and newer things.

Submitted by Jordan Rempe on
I found this article to be very beneficial especially for upcoming graduates. For many upcoming grads, it will be the first time in our lives we are completely financially independent from are parents/guardians. As the article mentioned, we never know when unexpected expenses will happen and it's important that we put ourselves in a good financial position, so that we don't consider embezzlement as an option. Embezzling money is wrong and I think there are many other options one should consider before resorting to this action. I think it's important for people to develop a budget and understand what their financial means will allow. Then living below those means in order to have money saved away for unexpected emergency expenses. This also requires strong self-control which, I believe is very important to develop. From an ethical perspective, it's wrong regardless of who does it and why they do it. By being financially aware of your income/expenses you can avoid this ethical temptation.

Submitted by Gabbi Hoversten on
In a lot of my classes, we hear about embezzlement in case of big amounts; millions of dollars over a long period of time. However, I know a lot smaller cases too where employees have stolen money from their company because of their financial struggles. In my opinion, I think it's fair to check a potential employee's credit rating before being hired. Your employer wants to be able to trust you and make sure your work improves the company, not hurts it. As I come upon graduation, I often think about how I will spend my first few paychecks and I know that I will definitely be saving mine to help pay for important things such as food, rent, gas, student loans, etc. Until I feel financially stable, I don't plan to spend my money on anything over the top or super extravagant because I know, as an accountant, how important it is to have an ethical mindset when you work in the day to day operations of a business.

Submitted by Conner McMurphy on
This article has a very interesting take on embezzlement, and the ethics behind it. I think for a lot of people it is easy to see the illegality of embezzlement/fraud, but it is also very easy to forget the other side of it. Which is the issues that person is facing outside of work. I agree that money management is a key part to stopping embezzlement, but I also believe that it might be a good idea for businesses to teach people these skill. I believe that employers using employee credit scores to base hiring could be a huge issue. If a people are being purposefully not hired due to their credit scores this is just digging the whole deeper. If people in bad credit situations are being discriminated against due to their credit scores are we not making the matter worse by taking away that opportunity to reach a better financial standing? I agree that embezzlement is a huge issue, but if companies are not willing to look at the issue from different angles then the issue will never be fixed.

Submitted by Ashley Fisk on
Throughout school we have discussed embezzlement several times but this blog post discussed it in a different aspect. I like how the author points out very common things that happen to people that can create a financial burden and giving the idea of "borrowing money." I never thought about how such simple things add up. The finance advice given is the same information taught in the personal finance class I took last year. I didn't know that employers looked up your credit score for possible new hires. While I can see why an employer might, I personally don't think that they should play that as a factor in the new hire. It should be based on their work history, knowledge, and education, not their personal finance decisions. Great article showing embezzlement from a different angle!

Submitted by Paige Sieren on
I found this blog post very interesting as I started to read it. As I read some of the comments below, I usually think of the big embezzlement issues as well and not having this be a real everyday problem around me. I totally understand how accumulating unpaid bills can be very stressful on a person and their lifestyle, but embezzlement is never the solution to that problem. You should always live below your means and save money for those unexpected problems that may arise. I know that is easier said than done, but having good money management skills is critical when you are younger so that you don't have to worry as much when you get older.