The signs of embezzlement appear when an employee manipulates financial records, hides missing financial documents, or diverts company funds for personal gain.
Real-world cases show how easily employee embezzlement can escalate. In Atlanta, a restaurant manager embezzled more than $300,000 by using company cards for unauthorized expenses.
Understanding these warning signs helps every business owner detect issues early and strengthen internal controls before losses grow.
Key takeaways:
- The main signs of embezzlement appear in altered financial records, missing financial documents, and unexplained gaps in payments.
- Vendor or customer complaints about unpaid bills are major warning signs of employee embezzlement and stolen company funds.
- Possessive employee behavior and refusal to separate duties can indicate hidden embezzlement schemes or concealed financial transactions.
- Sudden cash shortages, shrinking profits, and other odd transactions show weak internal controls and the need for stronger prevention measures.
What is embezzlement?
Embezzlement happens when an employee or trusted individual diverts company funds, alters financial records, or hides financial documents for personal gain. It is a form of employee fraud that often remains hidden when internal controls are weak or duties are not properly separated.
What are the signs of embezzlement?
The signs of embezzlement fall into behavioral clues, payment inconsistencies, and missing or altered financial documentation. Below are six common warning signs that appear across most embezzlement cases.
#1 Vendors saying they weren’t paid
A vendor reaching out to say that they weren’t paid is one of the warning signs of embezzlement, characterized as financial fraud. For example, an employee of yours could be stealing payments from vendors, and committing vendor fraud. They could be redirecting the bank transfer to themselves and still logging the payment to the vendor.
A variation of this includes that the vendor was paid less than what they were expecting. An employee could have pocketed a portion of the money in the fraudulent transaction.
In an example of this business fraud, a North Andover woman was found to have embezzled more than $157,000 in checks. Over a two year spell from 2017 – 2019, she diverted vendor checks to her own personal bank account. When vendors did not receive their payments, she led them to believe that they had been lost in the post.
#2 Customers saying they already paid
Let’s say your financial team sends a bill to a customer and they say that they already paid it, this is one of the warning signs of internal fraudulent activity. The embezzler may not have updated the financial records to say the customer was paid. Instead, the fraudster directs the money to themselves.
#3 Possessive behavior over information
One of the common red flags is if employees are acting very protective of information at work.
They may want sole control over dealings with the likes of financial records and accounts. You might find that they refuse to delegate it so management and the accounting team can’t see what they are doing.
The employee may also get edgy if you offer to help with some of the tasks that they lead. Also, they may access the office at strange times in the day.
They may not want to allow anyone to get too close to their work desk and their things so that it could derail their embezzling. These red flags could all indicate that employees are stealing money from your place of work.
Segregating duties and using the 4-eyes-principle can help combat embezzlement and employee fraud in your business.
#4 Cash missing
Missing cash from one of your business accounts is one of the signs of employee embezzlement. If employees are in a desperate situation, they may:
- Take petty cash
- Shortchange customers
- Steal from a safe
- Steal from the cash register
Keep records of cash balances and check your takings align with what has been sold. That way, you can detect embezzlement if cash keeps going missing.
#5 Reduced profit margin
If your business faces a decreasing profit margin and you have exhausted an investigation, it could be a sign that a worker is taking money from the company.
Be sure to do an audit of the finances to check if any fraudulent operation has been going on.
For example, in the UK, a woman embezzled nearly $1.9 million from a metal recycling company. After looking at business records, a senior partner in the company realized that funds were down. This red flag prompted an investigation and the billing scheme fraud was discovered. The theft enabled her to spend on personal purchases.
Without the right detection and prevention measures, cash can leak out of business accounts for a long period without anyone noticing. That’s why it’s critical to have the right policies set up.
#6 Missing financial documents
Missing documents or paperwork are warning signs of embezzlement in a nonprofit. Anything that could leave a trace or an indication of fraudulent activity may be stolen, hidden, or destroyed by embezzlers.
In one case, missing paperwork that would have explained payments on the office bank account caught the eyes of staff. In the end, the finance director was found to have been sending payments to himself and put it down as business costs.
This case of breaking the law amounted to more than $600,000 of stolen money. Another impact was that due to the theft, the company profits were understated from March 2007 to 2013. As a result, the company collected penalties and interest, for being outside of the law.
How to prevent embezzlement?
There are several ways to prevent embezzlement.
- Conduct regular, unannounced audits of finances
- Listen to staff if they raise a concern and investigate it thoroughly
- Also, explore a platform that can protect you if you are embezzled
Trustpair does this by continually auditing banking data and payments ahead of them being made. Our fraud detection software will flag and block any suspicious activity. We efficiently detect and prevent fraud from happening and have many features to enable efficient risk management.
Embezzlement – and B2B fraud overall – can have a disastrous impact on companies and individuals alike. Lee-Ann Perkins, a treasurer with decades of experience, shares her story in our latest video series.
What do you do if you suspect embezzlement?
- The first step is to investigate the matter thoroughly and alert the right legal authorities
- Conduct an audit of finances, this is how to prove someone is embezzling money
- Avoid making baseless accusations, time will tell whether their actions are legal
Recap
Beware of the signs of embezzlement which include possessive behavior and cash missing. If you detect any red flags, make sure you issue a warning to top management so they can alert the authorities. Have prevention and detection methods in place to help avoid the risk. Protect yourself against the financial effects of embezzlement by working with Trustpair. Bank data and payments will be continuously audited to keep on top of suspicious activity and cash won’t go missing.