Embezzlement

 

Joshua was a website developer for XXX company for the online shopping website, his duties were to ensure bugs free and zero downtime for the online purchasing systems developed by him.

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Joshua spent his free time with friends discussing how to generate passive income, the group decides to invest into the shares and stock market and took up investment courses to enhance their knowledge, the course trainer has a strong profile for making money from the shares and stock market, many students would follow his tips to buy shares and make quick profits, the methods and tips were accurate and excites many students. 

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Joshua received a piece of insider news about ZZZ company price will decline in the next few days due to a major contract being terminated by an anchor buyer. One of the strategies Joshua has learned was to "short selling stocks", which Joshua borrow shares from his broker which he does not own, the strategy is to sell the "short selling stocks" at the current market price and buy back at a lower price to cover whatever he has sold, this has an advantage that he does not need to pay upfront but by “buy-back-to-cover” for what he has sold at a declined share price before the payment settlement date will allow him to make the profits. 

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In this transaction, Joshua short-sold 2,000 shares at $3 each and “buy-back-to-cover” 2,000 shares at $2 each, he made about $1,500 profit after deducing brokerage fee, he was very happy with the profits.

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A couple of weeks later, Joshua received another insider tips that a second major buyer will also terminate a huge contract with ZZZ company, this round, Joshua used the same strategy and “short-selling” 20,000 shares, ten times of his previous transaction at the share price of $2.50 each, all 20,000 shares were sold.

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Unfortunately, the news turned out to be inaccurate, instead of the second buyer terminating the contract with ZZZ company, the first anchor buyer signed a new major contract with ZZZ company and the share price rose to $3 each, Joshua would have to buy back 20,000 shares at $3 each, that is $60,000 before adding the brokerage fee. What Joshua has was the $1,500 profit he made from the first transaction and there is still a shortage of at least $58,500 to be settled in a week’s time.

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Joshua has been asking around to borrow the money from friends, relatives and family members but the amount was too huge that no one can help. With the tension and pressure, Joshua had decided to change the bank account in the company online shopping website to divert customer payment to his bank account, his intention was once he got the money to pay off his debts, he will then corrupt the system to avoid being detected. 

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Within days, Joshua was able to pay off his debts to the share broker, however, Joshua became greedy and decided to keep the personal account on the online shopping website for longer and he planned to receive more money then corrupt the systems and quit the job.

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What Joshua has forgotten is that staff is allowed to purchase via the company’s online shopping website and it happened that the finance manager brought some items and received an e-invoice, she noticed that the bank details were different from the company bank account, an alarm was rose and the employers performed a covert investigation with the help of external investigators and digital forensics examiner. Evidence was found and Joshua had admitted to his wrongdoing. 

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The Verdict

The company lodged a police report and Joshua was prosecuted for the offense of Criminal Breach of Trust (CBT) and sentenced to five years jail.

 

Lesson Learned

From this case, we can identify the gaps for such business operational models, if your business model is similar to this case, consider the following:

 

1. The programmer should not have the authority to make changes to the bank details for online payment.

 

2. Any changes to bank account details must only be approved by the employer. Use the company partial bank account information such as the first and last 4 digital to reflect on all documents such as e-invoices, packing list, a delivery order. E.g 1234-xxxxx-8288

 

3. The shipping department should not release any goods if the partial bank account numbers on the delivery order are different from the one on the company official memorandum.

 

4. Perform at least half-yearly risk assessments and audits on the process involve money and stock transactions.

 

5. Review your business processes, policies, and procedures.

 

6. Purchase Fidelity Guarantee insurance which is a policy to indemnify the Insured employers for the loss of property or money sustained as a direct result of acts of theft, dishonesty, and fraud by an employee in the course of employment. Check with your insurance company if there is such insurance in your country.