Embezzlement, or occupational fraud, occurs in many forms, including fraudulent billing, financial statement misstatements or, more simply, a lack of control over cash. A survey by the Association of Certified Fraud Examiners (ACFE) estimated that U.S. organizations lose 5 percent of their annual revenues to fraud. Many times these frauds have gone on for years before they’re discovered.
If you’re an employer caught in this position, you likely have a few questions: Are the embezzled funds deductible? Are payments by the perpetrator considered income to the organization? How can the organization report these ill-gotten (and likely unreported) gains by the perpetrator to the IRS?