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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 Tyler Dau on
I have always found it interesting how people can get away with embezzling millions of dollars over many years without anyone ever noticing, but you mainly hear only about the big cases after they have been caught. You don't always realize that they might have started out just needing money for a unexpected car repair or something, and it just gradually turned into more and more over time. Taking a hundred dollars here and there can really start adding up over time, and I think it is important for businesses to have checks on employees and always audit the books.

Submitted by Wyatt Harvey on
The article really hits home the idea that every person needs to save their money up to 4-6 months of savings for a emergency. Nobody knows what is gonna happen 1 minute from now and if you don't have a reserve in place to take care of it your willingness to defalcate increases as it can put you in the hole quickly. I agree that as you come into more money it is usually the case that you will live above the means and spend more than you should, but it is a much safer bet to initially put money away in case of a unforeseen disaster. having this plan in place and knowing you have the funds makes the need to embezzle decrease, but there will always be someone or a group that colludes to cheat their way into money. These individuals will get caught usually it happens when they go on vacation. The key trigger is that they start living way above what their salary should be living at. Embezzlement is a atrocious thing but with the right savings tactic and plan in place the need to defalcate is greatly diminished.

Submitted by Cole Wise on
Interesting article about embezzlement and the ease of committing the unethical crime. Although it may be easy to steal money from a company, it is very hard disguising the extra funds added to someone lifestyle. Most times employers and employees have some intel of a persons financial situation. When someone starts living lavish and above their means, it can cause red flags to pop up. It is important to be materialistic when going through life and living within your means is so crucial. I took that people often embezzle not because they always want to, but because they choose to want to live about their incomes. Being smart and proactive about your finances can defer people from even thinking about stealing from their organization. Being smart young and humble can play a huge part of whether they commit the crime or not.

Submitted by Brandon DeMaris on
This subject can be very debatable because not everyone who embezzles is just stealing because they want to live outside of their economical status. People may be embezzling to cover prescription drugs for their children. they could be taking money to feed their family because their wages could be insufficient. They could be trying to cover their house payment and because you may not know what is happening at their home you would assume that they are just stealing and there for it is just wrong, but debating specific situation that have taken place where money has been embezzled might not look just down right wrong. Companies can play a big role in this issue because they might not pay very well but because of where the employee is living they might be stuck working for this company. They might not have health care that covers the basic needs for a family. This was a good article and really gets you thinking about reasons why some one might decide to embezzle.

Submitted by Karina Valdivia on
As once a retail worker myself and a current treasurer of a student organization on campus- I have had access to funds other than my own numerous times. The thought of someone taking money from their jobs has always startled me. Thankfully I have never been in a situation like the one described in this post, so it may be easy for me to say that it's unethical for someone to act this way when I truly don't know how desperate they are or the true circumstances they are under. However, I do believe living within your means plays a major role. Since the time I first had a job, I have always been an avid saver. Thankfully because of this I have been able to pay for unforeseen problems with my car numerous times and haven't felt strapped for cash. As I am nearing the start of my career I have been more aware of just how critical having a credit score is in today's world. I would argue that it's almost just as bad to have a huge credit bill as it is to have no credit at all. Dependent on how you chose to manage your money has the power to create an abundance of problems or opportunities for you.

Submitted by Spencer Ferguson on
I recently worked as a retail cashier so I found the part about how people such as cashiers may be more tempted to embezzle money but I actually do not think so. At least pending the retail store one works at. The reason I think this is because at the previous retail store I worked at we had to get the drawer signed off every night whether we were on or off. And if we were off all of the store leaders would know and the accounting department would look at the drawers and have someone look at cameras if it was a large amount missing from the drawer. However, my first job was at a entertainment center and when I had to reconcile a drawer there was no one who signed off, no cameras where I counted so it would have been very easy to embezzle money. I believe it all comes down to how ethical a person is. Me personally I do not think I could ever do it, knowing I did something unethical that could lead to me getting fired, maybe not getting hired somewhere else, and having that reputation of someone who steals from company. Overall, it was a very good article.

Submitted by Moriah Ross on
This is an interesting article to read because I am graduating in May and will be starting to work in the business world. I have a strong moral compass but it is a good reminder to have a cushion for unexpected expenses in order to avoid temptation. Whenever I hear the word 'embezzlement' I think of Hollywood movies and big time scandals. But I'm sure much more embezzlement is done in small ways. I'm not sure how I feel about employers screening credit scores. It does feel like an invasion of privacy, but they also need to protect their business.

Submitted by Marcus Norton on
I find the stories of embezzlement very interesting, particularly the justification that the individuals give. One case of embezzlement I recall reading about is the First National Bank of Chicago in 1998. In this embezzlement situation, employees sent money to a dummy account in the amount of $70 million dollars! I cannot even fathom how one could even think about stealing such a large sum of money, especially from a bank. Needless to say, they were caught before they could get away with the money. This does not mean that all embezzlements of a large sum are caught right away. Recall the Rita Crundwell case, when Crundwell embezzled millions of dollars from Dixon, Illinois, over a relatively long period of time. She stole $53 million dollars from a small town over 20 years using an uncomplicated scheme. As stated in the article, it may start out with an unexpected bill and the “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.” I believe this is very transferrable to every aspect of life and how habits are created.

Submitted by Logan Willis on
Embezzlement has always been quite the fascinating topic to talk and learn about. Learning how someone is able to get money from the company without anyone knowing and for so long is very interesting. You think with money being the circulation of the business it's be harder for this to happen but still does often. Although you'd expect they'd take a lot of money but more like its little added "fees" and they slowly accumulate over time. I do think this may be one of the worst situations that can come out of business problems, robbing isn't exactly a very ethical thing. Overall a interesting read on an ever learning topic!

Submitted by Cody Anderson on
It is true that many people find an unexpected bill of $750 extremely difficult to pay, and that this happens to many people as well. I, however don't believe that this is a significant reason to why people are embezzling money. Also, low credit scores could potentially result from many things, and shouldn't be a determinant for whether people should receive jobs. I don't believe there is sufficient evidence to prove that this is a reason people will embezzle. Money management skills are extremely important, and maintaining three to six months' living expenses in a liquid account sound great in theory, but this may be, and probably is unattainable for many Americans, regardless of the person's level of financial management. The most important concept I took away, and one I believe to be 100% true is that living beneath your means for a few years after graduation to build financial stability is key to being able to have three to six months of expenses in a liquid account. This is something I plan on doing as I am about to enter the workforce coming out of college.