textfiles/law/embezzle.law

April 1991                                                        

                                                                  
                BANK EMPLOYEE EMBEZZLEMENT                        

                            By

                      Denise M. Dube                                     
                 Supervisory Investigator
              Los Angeles County, California,
                District Attorney's Office
                   
                                                                  
     In August 1988, representatives of a large regional bank
contacted the Los Angeles County District Attorney to request
assistance in prosecuting employee embezzlement cases.
Apparently, employee embezzlement resulted in million-dollar
losses each year, and the bank experienced only minor success in
investigating and prosecuting these cases.  After reviewing the
bank's request, the district attorney realized the magnitude of
the problem warranted immediate attention.  In September 1988,
he directed the Major Fraud Section of the Los Angeles County
District Attorney's Office to develop and implement a program
that would facilitate processing bank employee embezzlement
cases.

     This article focuses on the extent of bank employee
embezzlement, how a program to curtail this crime was developed,
its implementation, and the problems encountered.  It then
details the benefits that were realized once the program was put
into effect.

THE PROBLEM

     The bank estimated that it experienced approximately 30
employee embezzlement cases a month, with a resultant loss of
$2.5 million a year.  No figure was projected for losses
incurred due to undetected cases.

     Of the embezzlement cases uncovered in 1989 by the bank's
investigative auditors, a statistical summary of the
perpetrators shows that:

     *  62% were female employees; 38% were male employees           

     *  66% had a high school education; 31% had some college;
        3% other education

     *  41% were between the ages of 20 and 25

     *  25% were between the ages of 26 and 35                       

     *  82% were working as tellers                                  

     *  47% took cash                                                

     *  71% had less than 1 year of service with the bank            

     The last statistic was by far the most important and the
primary reason the bank pressed for a pilot program to
investigate and prosecute employee embezzlements.  The program
not only would serve as a deterrent to current employees but
also would prevent offenders from finding employment in another
bank before the embezzlement was discovered.

     It is the transient nature of bank employees that compounds
the embezzlement problem faced by banking establishments.  Due
to a proliferation of civil suits, banks usually do not warn
other financial institutions of any problems encountered with an
employee unless criminal charges have been filed.  Therefore, it
is important to uncover the crime and charge the person
responsible before the embezzler moves on to work at another
bank.

DEVELOPING THE PROGRAM                                           

     The 200 investigators in the Los Angeles District
Attorney's Office have full-time peace officer status under
section 830.1 of the California Penal Code and are assigned to
the Bureau of Investigation within the district attorney's
office. (1)  The duties of these investigators range from
providing trial support to handling original jurisdiction cases,
such as major fraud, consumer fraud, and environmental cases.

     To begin, investigators met with bank representatives to
evaluate the extent of employee embezzlement and to learn how
county and city law enforcement agencies handled such crimes.
They also wanted to determine what action the district
attorney's office could take to improve the current situation.

     From these meetings, investigators learned that the bank's 
main complaint was local law enforcement's inconsistency in
handling embezzlement cases.  Oftentimes, charges were not filed
for many months after the initial complaint or an agency failed
to keep the bank informed of the status of each  case.  The bank
also found that in some instances, the law enforcement agency
failed to file cases before the statute of limitations expired.

     The investigators soon learned the reasons why banks
encountered problems in getting their cases processed through
the criminal justice system.  In some instances, it became clear
that officers in local agencies were too unfamiliar with the
workings of embezzlement cases to complete a thorough
investigation and the necessary followup for a successful
prosecution.  More often, an agency simply lacked the personnel
needed to work the growing number of cases.  Also, a prevailing
belief among officers was that embezzlement incidents were just
"paper cases," and they placed these cases at the bottom of the
priority scale.  In fact, a U.S. Department of Justice report on
the investigation of white-collar crime supported these
findings. (2)

IMPLEMENTING THE PROGRAM                                         

     After meeting with bank representatives and identifying the
problems that banks encountered with the criminal justice
system, the district attorney's office then evaluated its
resources to determine how it could effectively develop a
program dedicated to employee embezzlement cases.  For example,
the Major Fraud Unit set specific criteria for the types of
cases it works. Cases are accepted for investigation if they
involve multiple victims and/or suspects, are
multijurisdictional and complex in nature, and involve a
considerable dollar loss.  The types of cases for which the bank
was requesting assistance could result in losses ranging from
$2,000 to $100,000.  Cases involving losses exceeding $100,000
would be referred by the bank to the FBI for investigation.

     It was impractical to think of dividing 30 cases a month
among the Major Fraud Unit's 8 investigators.  This would have a
detrimental effect on the cases already under investigation.
Therefore, another approach had to be taken.

     Since one of the main complaints of the bank in dealing
with local law enforcement agencies was inconsistency, the
district attorney's office decided to relieve one investigator
of his caseload and make him the liaison investigator for the
pilot program.  This liaison investigator would serve as the
contact person in the district attorney's office for the bank.
In turn, the bank designated its own contact person to work with
the liaison investigator.

     The next step was to determine how the district attorney's
office could best use the bank's resources to process these
cases expeditiously.  Obviously, for the district attorney's
office to handle the number of cases projected, it became
imperative that the bank prepare its cases as thoroughly as
possible before submitting them to the liaison  investigator.
To address this issue, the district attorney's office offered to
instruct the bank's investigative auditors on how to prepare
cases involving employee embezzlement.

     The liaison investigator and a designated deputy district
attorney began by conducting a class for the bank's
investigative auditors on how to write reports of witness and
suspect interviews and prosecutive summary reports.  Then, each
investigative auditor received a folder that contained samples
of each type of report required in embezzlement cases.

     The deputy district attorney explained section 3361 of the
California Financial Code, misapplication of bank assets, under
which most of the cases would be filed. (3)  Discussion also
centered around the exhibits needed to file a case successfully,
such as checks and bank documents.

     Both instructors of the class stressed that cooperation
between the bank and the district attorney's office was crucial
for this pilot program to work.  The liaison investigator
encouraged the auditors to call him anytime if they had
questions or needed assistance in completing a case package
before filing with the district attorney's office.

     The instructors also took time to explain the filing
process fully.  The investigative auditors needed to understand
why the district attorney's office was requesting they do such
thorough work before taking action on an employee embezzlement
case.  The bottom line was if this pilot program was to work,
the bank's investigative auditors had to be responsible for
completing as much of the paper work as possible prior to
submitting it to the liaison investigator.

REVIEWING CASES                                                   

     Upon receiving the bank's report, the liaison investigator
reviewed the package to ensure it was completed properly.  The
investigator returned to the investigative auditor incomplete
reports, those that lacked documentation, or if the elements of
the crime were not established.  The liaison investigator would
return the incomplete package to the bank with a letter
explaining why it was not being accepted for processing at this
time.

     If the bank's package was complete, the liaison
investigator forwarded the report to a preselected deputy
district attorney for filing.  From this point on, any
additional investigative work would be the responsibility of the
liaison investigator, to include tracking all filed cases
through the court system and maintaining of the monthly case
status file.

SUCCESS OF THE PROGRAM

     From September 1988 through July 31, 1990, 51 bank employee
embezzlement cases have been filed through the use of this
program.  Of these cases, 10 suspects have outstanding arrest
warrants, 24 suspects have been convicted and sentenced, and 17
cases are pending in court.  From these statistics, it is
obvious that a substantial improvement has been realized in
prosecuting bank embezzler cases.

     This pilot program resulted in a faster turnaround time for
cases reported which, in turn, led to charges being filed more
expeditiously.  Better followup and a uniformity in the handling
of the cases were also realized.  Now, the liaison investigator
could check on the status of a case more readily because of the
tracking system and statistical file that were implemented and
maintained.

     Another significant benefit is the realization by the
district attorney's office that cooperation between the public
and private sectors is crucial to combat this crime effectively.
The law enforcement community must recognize the need to work
in conjunction with the private sector to prosecute bank
embezzlement cases.  On the other side, banks, title companies,
and other financial establishments must assist the law
enforcement community in investigating these complex cases.

     For example, the bank involved in this pilot program offers
classes in computer technology, bank terminology and procedures,
and trends in bank fraud cases to Federal, State and local
agencies in Southern California.  This keeps the law enforcement
agencies up to date on valuable information that leads to
successful investigations, apprehensions, and convictions.

CONCLUSION

     The development of a successful program to process bank
employee embezzlement cases illustrates that law enforcement and
private business establishments can work together toward a
common goal.  Only through these and other types of joint
ventures will the public and private sectors be able to control
and prosecute the growing number of fraud cases effectively.


FOOTNOTES
                                                         
     (1)  California Penal Code, Section 830.1, p. 247.

     (2)  U.S. Department of Justice, The Investigation of
White-Collar Crime (Washington, D.C.:  U.S. Department of
Justice, Law Enforcement Assistance Administration, Enforcement
Program Division, Office of Regional Operations, 1977), p.2.

     (3)  California Financial Code, Section 3361, p. 457.