According to Merriam Dictionary misappropriation is “to appropriate wrongly as by theft or embezzlement.” In non-technical language, misappropriation is to use someone else’s funds or assets in an unauthorized manner. There are many ways to misappropriate funds, but one of the main ones is through Occupational Fraud.

Occupational Fraud is the use of one’s occupation for personal enrichment. Employees or those in authority use their positions within a company or government to steal and use the company’s resources and assets for his/her own benefit. The most common type of occupational fraud is the theft of cash, although there are so many skillful ways to misappropriate funds. Cash is often an asset to steal, if there are limited controls. Whether it is from a cash register or safe, cash is a liquid asset that is present and, unfortunately, not adequately monitored especially when the amounts seem miniscule. Generally, there are three types of cash theft; skimming, cash larceny and fraudulent disbursement.

When a customer makes a purchase, the cashier does not put the sale in the system or puts part of the sale in the system and pockets the balance of the money. This is known as skimming. Skimming is in essence the taking of cash prior to it being recorded in the system. The theft often goes undetected because the business/company has no record of the sales.

The opposite of skimming is cash larceny. This type of cash theft occurs after the sale has already been recorded in the system. An employee will steal the money and try to conceal his or her actions, for example, such as voiding the transaction or attempting to alter or destroy the register tape.

Fraudulent disbursement is a form of larceny. However, this may involve things such as tampering with a cheque, creating and falsifying a bill or invoice, or presenting false information on payroll documents, which would cause an employee to be paid more than they should be.

Asset Misappropriation Prevention

Keep a close eye on your inventory! If inventory is decreasing and there is no money to account for this inventory, then there is a great possibility that an employee is stealing either inventory or cash. Check stocks/ inventory on a regular basis – quarterly or semi-annually depending on the size of your business.

Install cameras near the cash register. This should deter individuals from stealing since they know that their actions are being recorded. Random checks of the registers/petty cash can also help to prevent skimming and larceny. From time to time, have someone other than the cashier do the reconciliation as a means of internal control and segregation of duties at the end of the business day.

Remember, it is important to “Know Your Employees” (KYE). Prior Due Diligence should be conducted on all potential persons as a way to mitigate the risk to your business or company. Always conduct ongoing monitoring of existing employees. Client trust you to keep their funds safe and you have a fiduciary duty and responsibility to keep your own assets safe. Having employees stealing funds will have an adverse effect on the reputation of your business, whether it be issues with client trust, issues attracting investments, demotivation of good and ethical employees to name a few.

Remember that any comments and queries can be sent to us at kaw@kawmanagement.com and info@kawmanagement.com or visit our website at www.kawmanagement.com.