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Corporate finance is a complex beast. There’s a reason accountants are so valued in the business world – and a reason businesspeople who don’t make use of their services are regarded as foolish, at best. It’s frighteningly easy to mishandle corporate funds, and you may well have done so yourself at some point. Here’s how to tell (and how to avoid it in the future).
When we hear the words ‘corporate embezzlement,’ corruption is often the first thought that comes to mind. We picture a corporate executive who’s so full of themselves, so convinced that they deserve the world, that they’ll willfully steal money from investors, colleagues, and employees. As is often the case, the reality is not so simple.
Greed is far from the only reason someone might embezzle funds. Sometimes, it’s a combination of impulsiveness and desperation. Other times, it’s completely by accident – by some mistake of their own or someone else’s.
Today, we are here to talk about the latter.
Corporate finance is complex. Even the most business-savvy entrepreneur isn’t necessarily a financial expert. Even the best CEO usually needs to rely on someone else to help them balance the books.
It’s when they try to go it alone that they usually run into trouble. Maybe they feel they simply don’t have the budget to hire an accountant. Perhaps they’re overconfident in their own abilities, or the notion that they might mishandle corporate funds simply doesn’t occur to them.
Embezzlement is far from the only crime they might stumble their way into. There are a number of ways one might accidentally commit fraud. By making yourself aware of them – and by working with both a registered accountant and a knowledgeable attorney – you can avoid committing any of these yourself.
Trade Fraud
One of the examples I linked in my intro is the story of Dan Bubalo, who found himself in hot water with the SEC a few years back. As CEO of an international trade company based in Minneapolis, Bubalo ended up accruing a debt of $4.5 million and losing investors about $10,000 each. The reason?
His attorney made a mistake. They didn’t properly register a trade he was performing. As a result, Bubalo now owes the sum total of the lost funds to the federal government.
“I couldn’t go in front of a jury and say the dog ate my homework,” Bubalo told Market Watch in 2014. “As CEO, I should have known.”
Tax Fraud
Our next entry is more common with smaller organizations, especially those that are independently owned and operated. For example, let’s say you work from home. Listing your full mortgage as a business expense is fraud, even though your home is your workplace.
Similarly, you cannot list a new kitchen appliance as a business expense if it’s primarily for personal use.
Insider Trading
Believe it or not, it is possible to commit insider trading by accident. If you know your company is doing well and sell your stock – before that information has been released to the public – that could be construed as insider trading. You might even implicate friends or family in insider trading if you convince them to buy or sell stock based on your internal knowledge.
Bribery
Bribery is probably the most nebulous of accidental crimes on this list. While it’s quite clear that handing money to a judge or politician to influence them is illegal, you could end up being charged with bribery if you try to influence an employee’s actions in some way. Something as innocent as a holiday gift could be misconstrued as a bribe given the right conditions.
“Gifting should be about showing gratitude, not getting gains,” writes Linas Ceikus, founder of Tinggly.com. “To stay in the clear, it’s important that companies have a corporate gifting policy that addresses both giving and accepting gifts.”
“It’s also important to gift at the right time,” he continues. “Don’t give an employee a gift before asking them to do a big favor. Don’t give gifts to a client before attempting to secure contracts with them.”
Theft of Funds
Last but certainly not least, there’s traditional embezzlement. Accidentally spending company money on something you’re not supposed to purchase – for example, if you misuse a company credit card to buy something for yourself. Always double check before you buy something with company funds – it’s better to be safe than sorry.
Ignorance of The Law IS an Excuse
The good news is that in Texas, lack of malicious intent is a valid defense against fraud and embezzlement charges (in most cases). If you were honestly unaware you were committing a crime – and did not intend to defraud or steal from your company – you’re likely in the clear. This also holds true for accounting errors.
Even so, committing accidental fraud means both legal fees and stress – and as I’ve shown with Bubalo, there’s always the chance you’ll be convicted. Best to familiarize yourself with the laws, and find a few experts you can trust. That way, you can avoid putting yourself in the crosshairs altogether.
I like that you mentioned that there is a need for a knowledgeable international trade attorney when it comes to corporate embezzlement. My wife and I plan to have an upstart business. In case that we stumble upon a troublesome deal, we will take note of hiring a business attorney to help us out.