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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.


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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 Larry Wall 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.