Follow the Money: Embezzlement

If there’s no honor amongst thieves, then there’s absolutely no shame in an embezzler. While the crook who steals a car is at least brazenly honest about what he’s doing, embezzlers commit their crime by taking advantage of a position of trust. They then misappropriate cash and property for their own benefit. In embezzlement, there’s no instance of trespassing; they’re legally allowed to control the funds of their victims, and have been entrusted to do so. It becomes a crime, however, when they violate that trust to satisfy their own greed.

One of the simplest examples of embezzlement is a hypothetical cashier who steals from the cash register. They’ve been entrusted with money that belongs to the company, but they misappropriate it to themselves. While this example of embezzlement is unlikely to go unnoticed (and, in fact, cash registers were invented largely to prevent this type of situation from occurring), other forms of embezzlement can be much more sinister, and much more severe, sometimes resulting in millions of dollars being siphoned away.

Often, those who commit embezzlement will take concerted efforts to disguise their actions, thus sustaining their crime for long periods of time. Embezzlers may falsify financial statements, create (and ‘pay’) phantom employees, or bill fake vendors for services that never took place. In many cases, embezzlers are more adept at financial processes than their victims are—and embezzlers use that gap in understanding to their own benefit.

Famous Case: Dane Cook’s Criminally Unfunny Half-Brother

To most of the world, comedian Dane Cook seemed to come out of nowhere and storm into the mainstream. His 2003 album, Harmful If Swallowed, went double platinum, making him the first comic in over a quarter-century to make the top five of the Billboard charts. He sold out Madison Square Garden and landed leading roles in big-budget films. In truth, he’d been performing for over a decade before finding success. And, since the beginning, he’d had his half-brother, Darryl McCauley, managing his fledgling business.

McCauley had been working as a corrections officer when Cook made him an offer: manage my bookings and finances, and we may not have much, but we’ll have enough for both of us. That worked for a while, with Cook working as a road comic and making ends meet (barely). But as Cook’s star rose, so did the paydays, and by the mid 2000s, McCauley was handling millions of dollars on Cook’s behalf. McCauley provided Cook with monthly financial statements, and became a close advisor of how Cook should, or shouldn’t, spend his money.

In 2008, Cook decided to buy a house in Southern California. McCauley strongly recommended against it, citing concerns about Cook’s career trajectory, which had taken a slight turn for the worse. But Cook had hired a second manager to help with the business, and the second manager reported to Cook that McCauley’s methods were extremely unorthodox. As McCauley pressured Cook to not make any big purchases, and also pressured the second business manager to sign over control of certain assets, suspicions were raised further. Acting on a hunch, Cook went to a local branch of his bank, and found his accounts completely empty.

Investigators soon learned that between 2004 and 2008, McCauley had used his position to siphon off several million dollars from Cook’s accounts. In some cases, he used the cash to buy jewelry and real estate. In other cases, he simply stashed it in the walls of his house. The financial statements he’d provided to Cook were, upon the most cursory of reviews, completely bogus: at one point, McCauley had written himself a check for $3 million.

McCauley pleaded guilty to 27 counts of larceny, three counts of forgery, and one count of embezzlement. He was sentenced to six years in prison, and ordered to pay $12 million in restitution.

How Investigators Fight Embezzlement

Investigators and forensic accountants in the private sector have a huge role to play in preventing and detecting embezzlement. Their first line of defense is a rigorous audit procedure. Publicly traded companies are required to change audit companies every five years. In some cases, large companies will retain one audit company to check the work of another.

Their second line of defense involves strict internal controls. These can include a separation of duties such that no single individual controls all levers of a major financial transaction. Further internal controls may include making large, abrupt transfers between trusted advisors, while closely monitoring the process.

Once embezzlement is detected, forensic accounting is required to discern the differences between financial statements and reality. This forensic audit can bring to light the scope and methods of an embezzlement case, as well as facilitate a return of some or all of the embezzled funds. Once the forensic audit is complete, the justice system may pursue criminal culpability, while the victim organization can begin putting new safeguards in place to prevent further vulnerabilities.

Embezzlement isn’t a perfect crime. But it can easily go unnoticed for long stretches. To tackle embezzlement and bring its perpetrators to justice, forensic professionals need a skillset that blends expertise in IT, accounting, and investigations.

Three Experts Leading the Charge Against Embezzlement

Margaret McCoey – La Salle University

Margarate McCoey is director of the graduate programs in computer information science and information technology leadership at La Salle University. She earned her BA in mathematics and computer science from La Salle University, and her MS in computer science from Villanova University.

McCoey leads the charge in La Salle’s economic crime forensics program by taking a forward-thinking, data-driven approach. Her areas of expertise include database management, network theory, and technology architecture. Prior to joining academia, McCoey accrued 30 years of experience in system development, and she maintains membership in the Society for Information Management.

Donald J. Rebovich, PhD – Utica College

Dr. Donald J. Rebovich is a distinguished professor of criminal justice and coordinator of the financial crime investigation program at Utica College. He received his PhD in criminal justice from Rutgers University.

Prior to joining the faculty at Utica, Dr. Rebovich served as research director for both the American Prosecutors Research Institute and the National White Collar Crime Center (NWC3). While at NWC3, he directed the National Public Survey on White Collar Crime and analyzed FBI data on internet crime. Currently, Dr. Rebovich’s research is focused on economic crime victimization, white collar crime prosecution, and multidisciplinary task force development.

Richard Riley, PhD – West Virginia University

Dr. Richard Riley is a professor of public accounting and the master of forensic and fraud examination program coordinator at West Virginia University. He also serves as the director of research for the Institute for Fraud Prevention. He received his PhD in business administration from the University of Tennessee.

As an expert forensic accountant and fraud examiner, Dr. Riley has developed fraud and forensic accounting programs for the US National Institute of Justice and the IRS. He’s authored four books on forensic accounting and fraud examination. Dr. Riley maintains the CPA, CFE, and CFF designations. He won the Association of Certified Fraud Examiner (ACFE) Educator of the Year Award in 2008, and the ACFE’s Hubbard Outstanding Achievement Award in 2012.