misappropriation of assets

 Misappropriation of assets occurs when an employee diverts or takes the organisation’s resources for personal gain. It is the most common form of workplace fraud and the losses vary depending on how fast it is detected or if there are strategies in place to prevent it. In most cases, the criminals are trusted employees such as directors or senior managers. This is because they have greater control of business assets and are usually responsible for deciding how to use them. 

 Assets can include cash, vehicles, devices, office equipment and more. Anything that an employee can use at work or take home without getting caught. This is the main reason misappropriation of assets can be classified as theft. 

 

Why does misappropriation of assets occur?

The fraud triangle clearly explains the reasoning behind fraud. An individual needs:

-Motivation

-Opportunity

-Rationalisation

 

Motivation

 An employee who commits fraud is usually under some kind of pressure. It might be financial or non-financial. They may be struggling to pay the bills or trying to ensure their own business succeeds so they do not fail in the eyes of their family. Employees feel like they are not able to share their problems with their supervisors as it will lead nowhere so they seek other ways to solve their problems. Even if that means going against their ethical beliefs.

Opportunity

Misappropriation of assets occurs when an employee is trusted with assets that they misuse. So the opportunity requires an employee to be in a position where they can handle assets. Weak internal controls can also provide an opportunity as the employee will know that they will likely not get caught. 

Rationalisation

As fraud is unethical, individuals need to rationalise their actions to get rid of the guilt associated with committing a crime. They try to convince themselves that there is no other way to solve their problem. They might also excuse it as stealing money that the company will not miss as they are making thousands of dollars. This is necessary for the fraudsters because if they cannot convince themselves that their misappropriation of an asset isn’t really ‘bad’,  they will probably find a legal solution. 

 

Types of Asset Misappropriation

Employees can be creative when fraud is involved. The term itself can cover different crimes in the workplace. There are many ways misappropriation of assets can take place in a workplace. The most common types are:

-Payroll fraud

-Embezzlement 

-Data theft

Payroll fraud

 A fraudster may choose to obtain money by creating fake profiles of employees, also known as glost employees. These employees get paid but they do not work for the company and they do not exist. The money goes directly to the fraudster who set up the profile. 

 Payroll fraud includes the falsification of timesheets when employees submit hours they have not worked or overtime that was not authorised or approved. This can lead to staff getting paid more than they should be and receiving money they had not earned. The fraudster can do this for themselves or for another employee. 

 Employees who commit these kinds of fraud have control over payroll and know that no one will be checking their entries or think a check is unlikely to happen. This gives them the ‘opportunity’ to misappropriate company resources without getting caught.

 

Embezzlement

 Embezzlement and misappropriation of assets are two terms that sometimes are used interchangeably. Embezzlement includes fake invoices that employees forge to steal money through payments. They may create shell companies and claim that they are doing business with them while in reality, all the funds go to their bank accounts. They might also bill the company for invoices related to their personal purchases. It can be a very expensive crime with severe consequences. 

In 2015, an executive and his wife were sentenced after being found guilty for embezzling about $16 million. The business affected was a bakery, which highlights that all businesses carry some kind of fraud risk, no matter the industry or the size. 

 Embezzlement can also include the theft of office supplies for personal use outside of work. For example, an employee might borrow a work laptop daily or go home with printer inks and paper. 

 

Data theft

 Employees responsible for sensitive information might use it to commit misappropriation of assets along with other crimes. They could use customer data to contact them and acquire them as their customer for their own business, or they might sell that data to third parties including competitors. Essentially they are trying to steal customers from the company, which will also result in revenue losses. This might be one of the easiest strategies for fraudsters to rationalise. While they are stealing personal data, they are leaving the option to the clients, to choose who they do business with.

 A more serious issue is identity theft which refers to employees using sensitive data to take over customer accounts, emails and passwords. This will allow the fraudster to benefit financially at the expense of the company. 

misappropriation of assets

Impact

Misappropriation of assets carries consequences for both the fraudsters and the company that has been affected. 

 It can be a very expensive crime as it might go undetected since the employee is trusted by the company. THe damage could reach into the millions, depending on the size of the company and the position of the criminal. The business will also need to spend money on acquiring new employees and reevaluating its internal environment. 

 The company could also lose money from as staff may struggle with  productivity. This is because the individual who committed asset misappropriation was someone who was trusted by other members. When they misuse assets, employees may feel betrayed and lose their trust in the company as they let fraudulent activities go unnoticed. Staff could also be afraid of their future and choose to look for a job elsewhere as misappropriation of assets can damage customer loyalty and consequently sales. 

 Customers do not want to purchase products and services from unethical organisations that may not protect their data adequately. The loss in revenue will probably last for a long period of time until the reputation is restored. 

 Moreover, it will be hard to find new staff as candidates do not want to work for an organisation with questionable standards. The people who were managed or supervised by the criminal may also be impacted as employees could think that they worked together on the crime. Their mental health may suffer as they were deceived and they are suffering the consequences for a crime they did not commit.

 If the fraudster is caught and found guilty, then they will be facing great fines and potentially time in jail for a severe crime. Their career will be permanently tainted and they might have a criminal record going forward. Other organisations are not likely to hire them as they do not want to associate themselves with criminals or put their company at risk. 

 Misappropriation of assets may seem like a beneficial situation for the criminal in the short term, but the risk is always higher than the reward.  

 

How to prevent misappropriation of assets

 There is no guarantee that misappropriation of assets will not happen to your business. However, there are steps managers can take to minimise the possibility. When hiring new employees, it is wise to check their references and ensure that they are legitimate. It is not enough to call the person they have listed on their resume. Managers should look up the person to see if they are who they claim to be. 

 Businesses that lack strong policies and procedures are more likely to fall victim to misappropriation of assets. Companies need to establish a zero-tolerance policy against fraud and create a risk-aware environment in the workplace. All employees should know what misappropriation of assets could look like, what steps they need to follow to report it and what the consequences are if a person is found guilty.A client and partner check is also helpful as it can uncover any fake businesses.  This will discourage fraudsters from taking action as they do not see an ‘opportunity’. Even if they have the motivation to commit fraud, they know that the organisation has a clear plan to tackle it quickly. 

 Job rotation is another strategy businesses can use to prevent misappropriation of assets. If employees are given different tasks every few months, fraudsters will not have enough time to familiarise themselves with their new position and commit fraud without being caught. Job rotation can also give extra experience to staff as they are trying different roles. If job rotation is not possible, then delegating duties to two or more employees can be helpful as one employee will monitor the other.

 Last but not least, audits are effective in detecting and preventing fraud as they can find unusual transactions or system weaknesses. 

 

Conclusion

Misappropriation of assets can occur because of internal and external conditions. In most situations, the suspected employee will be suspended to ensure that they do not jeopardise the investigation and limit the damage caused by their actions. While it may be impossible to eliminate this risk, knowing how it can occur and minimising the window of opportunity can be adequate protection.

Polonious can assist businesses with fighting misappropriation of assets by allowing them to conduct a thorough investigation while protecting the identities of everyone involved. In the case of a false alarm, no employee will be affected negatively because of rumours. Polonious can track the progress of the case and store everything in one place so all the information is easily managed. By using Polonious, investigators will have more time to focus on their case and have support in recovering funds.

Book a Demo Now

Learn more about how Polonious can help you fight misappropriation of assets.

close

Don't miss our next newsletter!

Our newsletter is sent once per month and covers interesting and relevant news and developments related to investigation management. Unsubscribe any time.

SIU Insights report 2021How do you compare to other SIUs?

Check out some interesting results from our SIU management survey. Submit below form to receive the download link and related updates going forward.

GICOP changes 2021Download the GICOP whitepaper and stay compliant.

Our whitepaper covers all aspects you need to know to stay compliant with the latest GICOP changes coming into effect in 2021. Submit below form to receive the download link and related updates going forward.