Asset misappropriation is when an employee steals company funds or other assets for personal gain – for example, asset theft. It’s one of the most common types of corporate fraud and costs businesses millions of dollars every year.
Some asset tracking costs are unavoidable, but there is nothing worse than finding out an employee has been stealing from you. Unfortunately, it’s far too common. Asset misappropriation comes in a wide range of forms and while you can prevent it, the idea that someone on your team would do so is still a bummer.
In this guide, you’ll learn everything you need to know about asset misappropriation, including all the forms it takes, how you can prevent it, and who typically engages in this type of fraud.
What Is Asset Misappropriation?
Asset misappropriation is a type of workplace fraud that involves an employee or team member stealing or diverting company resources for their own personal gain.
The resources in question can be actual company funds, as well as other assets like vehicles, office supplies, electronic devices, or anything else owned by the business in question. It’s similar to asset theft, but with the important distinction that asset misappropriation covers any misuse of company assets for personal gain – not just their outright theft.
Types of Asset Misappropriation
While this kind of fraud sounds pretty cut and dry, the reality is that there are lots of different types of asset misappropriation that occur at businesses on a regular basis. However, there are some that are more common than others, which will explain below. Here are some types of asset misappropriation that you should look out for.
Embezzlement
You’ve probably heard about this one in movies and TV shows, but embezzlement involves the production of fake invoices that are created by employees to receive payments from customers and clients. Instead of going to the company, the money goes directly to them.
Embezzlement typically occurs over a long period of time, with the average length of a scheme being around 14 months and nearly 30% of all embezzlement lasting longer than five years.
Payroll scam
Doubling your salary sounds pretty good, as long as you aren’t doing it through a payroll scam. This type of asset misappropriation involves creating a fake employee — or ghost employee — that is subsequently in the payroll system, funneling money to the nefarious employee.
The ghost employee in question can be a real person that either knowingly or unknowingly is involved with the scam or it can be an imaginary person with payment information to the scammer in question.
Data theft
Money isn’t the only thing that employees can steal from your business. Data theft, for example, is the practice of employees utilizing sensitive company information for their own personal gain.
Data theft can take many different forms. An employee could steal customer data and sell it to a third party or just use the information to steal the client for themselves, depriving the company of that revenue.
Expense Reimbursement Fraud
If your company allows you to expense personal costs, that opens the door to expense reimbursement fraud. This type of asset misappropriation describes when an employee creates false expense reports in an effort to receive compensation for expenses that were never incurred.
As for what kind of expenses could be the target of this fraud, travel is one of the most common options, with gas mileage in particular a difficult expense to measure on a consistent basis due to the different prices across the country.
Check tampering
This one is a bit less common in the modern era given the digitization of payments, but check tampering involves an employee altering a check given to the company so that they funds can be deposited into one of their accounts.
Check tampering can also take many different forms, many of which involve some kind of forgery. Sometimes it’s even simpler, with the fraudster simply changing the payee information to themselves.
Who Misappropriates Assets and Why?
One of the best ways to ensure that asset misappropriation doesn’t happen is to understand who actually does this kind of fraud at a business. For starters, you have to be in charge of assets to misappropriate them, which means that upper-level employees need to be on your radar as much as lower-level employees. In fact, 34% of all corporate fraud involves executive/upper management team members.
When it comes to particular industries that are vulnerable, the financial sector is the most common for fraud and asset misappropriation, representing 20% of the cases in the US, according to the report from Gitnux.
As for the why, it’s hard to say exactly why someone would misappropriate funds, but there are a few potential reasons to consider. For one, it’s likely an unhappy employee that has grown dislike working at the company. Additionally, it’s safe to assume the person is financially in need — or at the very least greedy — as taking this risk has some serious potential consequences.
Check out our guide to asset compliance for more information
The Consequences of Asset Misappropriation
Of course, asset misappropriation can lead to a lot of consequences for the team member stealing from your business. From losing their job to receiving criminal charges, fraud like this obviously warrants some serious ramifications.
Beyond that, though, misappropriation of assets can negatively impact businesses in a variety of ways as well. Here are some of the consequences of asset misappropriation.
Financial standing
As far as business fraud is concerned, asset misappropriation isn’t the most expensive, but it can still impact your financial standing in a significant way if you aren’t careful. One study from the Association of Certified Fraud Examiners found that the median loss for businesses that experience asset misappropriation is $120,000 per incident.
Reputation
It goes without saying that misappropriation of assets isn’t necessarily the direct fault of the business, but many of your clients and customers might not see it that way. This kind of fraud can definitely lead to your reputation being marred in an irreparable way, which could lead to even more financial strife in the long run.
Employee morale
With 70% of workers noting that open communication by senior management as the best indicator for engaging with their job, fraud isn’t a good way to keep employee morale up. It will create an aura of distrust that will breed high turnover and low productivity, so make sure to stop it in its track and be open and honest about the process of right the wrong.
Legal standing
Sure, the employee that committed fraud will get in trouble, but in certain situations, business can attract legal issues of their own due to negligence or corruption. However, only 57% of cases of fraud are even passed along to law enforcement, largely due to the fear of bad publicity on the side of management.
How to Prevent Asset Misappropriation
Obviously, with consequences like those, you’ll want to be sure that you’re doing all you can to prevent asset misappropriation at your business. Fortunately, there are plenty of steps you can stake to lessen the possibility of this kind of fraud happening. Here’s how to prevent asset misappropriation at your company:
- Vet employees – You should be doing this anyway but be sure to do background checks and other vetting procedures to ensure your team isn’t prone to these kinds of crimes.
- Bolster all security – Digital and physical security measures should be updated and funded regularly, be it your cybersecurity team or the lock on your front door.
- Whistleblowing policy – Establish a policy that will encourage your team members to report this kind of fraud before it becomes a serious problem.
- Regularly audit system – In the modern age, most asset misappropriation is enabled by online systems with weak security and little oversight, so conducting an asset inventory audit regularly can make a big difference.
- Have a plan for fraud – If asset misappropriation does occur, it’s best to have a plan in place that you can quickly enact, rather than trying to figure out a reaction on the fly.
- Use robust software – Not all software is created equal, so know that skimping on the tools your organization uses might cost you more in the long run. Many of the best payroll software solutions, for instance, make it easy to spot irregularities. Their free counterparts may not.
These preventative actions will likely cost a bit of money, but the consequences of asset misappropriation are expensive too, so it’s more than worth than worth the investment.
Asset Misappropriation Key Takeaways
We’ve learned a lot about asset misappropriation in this guide, including what it means, how it works, how to prevent it, and what the consequences are for the employees that take part. We also went over some of the types of asset misappropriation and which employees often engage in this kind of behavior.
So, what are your next steps? Getting set up with asset management software can be a good start, as it will not only help you organize and streamline the process but will also help you keep a close eye on assets to make sure that misappropriation isn’t happening.