Keeping money and ideas safe from outsiders is relatively easy. But what happens when you have to keep them safe from insiders? This is when you need to know about asset misappropriation.
In this article, we’ll explain what asset misappropriation is and what steps you can take to prevent it. Be ready to take notes!
Find out how Teramind stopped a case of employee fraud at Arrivia – watch our video for more insights.
What is Asset Misappropriation?
Asset misappropriation is the most common form of occupational fraud. Put simply, it’s when an employee or official steals or misuses an organization’s resources. Unlike complex financial statement fraud, this is usually about “skimming from the top” or “taking a little extra”.
Misused company resources can be money, supplies, inventory, or equipment.
What makes asset misappropriation especially dangerous is that, unlike cyber threats and hacking, it’s an insider risk that can be progressive and almost undetectable.
For example:
Asset misappropriation can be an employee taking some money for themself every time they make a sale. It’s subtle and harder to detect than a direct threat from an outside person, but it’s no less damaging.
Why Does Misappropriation of Assets Happen?
According to the ACFE’s 2024 Report to the Nations, asset misappropriation schemes are the most common type of occupational fraud, occurring in 89% of cases and resulting in a median loss for businesses of $120,000.
Why is it so prevalent?
Well, there are three main factors, commonly known as “the fraud triangle”:
- Pressure: The “why” (debt, greed, or addiction).
- Opportunity: The “how” (weak internal controls or too much trust).
- Rationalization: The “excuse” (“The company owes me,” or “I’m just borrowing it”).
Employees who commit asset misappropriation have a clear, personal reason to do so and know that the company’s systems aren’t solid enough to detect it.
When you combine a good reason with little to no possibility of getting caught, that’s when assets are misappropriated.
What Are the Warning Signs of Asset Misappropriation Schemes?
Spotting asset misappropriation requires you to look at two different things: behavioral red flags (how the person is acting) and operational red flags (what the data is doing).
Fraudsters rarely stop at one “hit,” so patterns tend to emerge over time. Here’s what you should be looking for:
1. Behavioral Red Flags
According to the Association of Certified Fraud Examiners (ACFE), these are the most reliable indicators of internal theft:
- Living Beyond Means: An employee whose lifestyle (luxury cars, expensive vacations, high-end jewelry) suddenly doesn’t align with their known salary.
- The “Workaholic” Paradox: An employee who refuses to take vacations or sick leave. They often fear that if they’re away for a week, their replacement will discover the “ghost employee” or the missing inventory.
- Financial Difficulties: High personal debt, gambling habits, or family financial pressures can turn a “good” employee into a desperate one.
- Control Issues: Someone who is overly protective of their workspace or refuses to share their job duties/processes with others.
- Unusual Closeness with Vendors: An accounts payable clerk who is “too friendly” with a specific supplier might be receiving kickbacks for approving inflated invoices.
2. Operational and Data Red Flags
These are the “paper trails” that suggest something is off in the books.
Cash and Billing Signs
- Missing Documentation: Invoices that are photocopies instead of originals, or missing receipts for large expense reimbursements.
- Sequential Invoice Numbers: If a vendor’s invoices to you are numbered 101, 102, and 103 over three months, it’s a sign that you’re their only customer — a classic hallmark of a shell company.
- Rounding Trends: An unusual number of expense reports or invoices that end in even numbers (e.g., $500.00 vs $493.22).
Inventory and Payroll Signs
- Inventory “Shrinkage”: Consistent, unexplained gaps between what the physical count shows and what the records say.
- Duplicate Addresses: Running a data check that finds an employee’s home address matches a vendor’s “Remit To” address.
- After-Hours Activity: Large inventory movements or system logins occurring late at night or on weekends when no one is scheduled to work.
What Are the Common Forms of Asset Misappropriation?
Asset misappropriation isn’t a single act; it’s a spectrum of internal vulnerabilities ranging from physical theft to sophisticated digital manipulation.
Here are the primary ways insiders exploit an organization’s assets:
1. Data Theft
Data is your most valuable — and often most vulnerable — asset.
Research backs this up: according to the Identity Theft Resource Center, there were 3,332 data breaches in 2025, representing a 4% increase from the previous year.
Data theft happens when someone enters a company’s systems without permission and takes sensitive information, such as customer records, financial statements, company data, or even secret business plans.
While external hackers grab all the headlines, malicious insiders are often the worst offenders. Whether driven by financial gain or corporate espionage, employees with “keys to the kingdom” can exfiltrate customer databases, intellectual property, or strategic plans with a single USB drive or cloud upload.
2. Payroll Schemes
Payroll fraud happens when someone in charge of payroll cheats the system to take extra money for themselves. This can include making up fake employees or saying they worked more hours than they did.
A recent example is Viktorija Lukjanova, former senior manager at East Lothian Produce. She ran a three-year scheme where she created “ghost” agency workers and diverted their wages into her personal account.
3. Embezzlement
Embezzlement occurs when anyone with access to company funds manipulates records for personal gain.
This kind of fraud includes anything from falsifying financial statements to creating fake vendors. And all levels of employees can be involved, from clerks to C-suite executives.
These schemes are also notoriously patient; the average embezzlement goes undetected for 16 months, growing in scale as the perpetrator becomes more confident in the lack of oversight.
A famous example is Rita Crundwell, former comptroller and treasurer of Dixon, Illinois. For over a decade, she stole $53 million from the city by creating fake invoices and depositing the money into a secret bank account.
4. Expense Reimbursement Fraud
This type of fraud happens when employees submit false or modified expenses to pretend that personal expenses are work-related.
It’s common in companies that don’t regularly audit expense claims or bank accounts, which leaves a lot of room for fraudsters to manipulate information.
By submitting forged receipts or mischaracterizing personal splurges as business necessities, employees exploit manual, “rubber-stamp” approval processes that lack automated verification.
An infamous example is the Tyco International scandal, where executives were caught claiming personal luxuries (like a $6,000 shower curtain!) on the company’s dime.
5. Billing Schemes
This is a common asset misappropriation scheme. It involves setting up fake entities or colluding with outside vendors to charge for “phantom” services.
Billing schemes don’t just bleed your bank account; they create a massive reputational risk. If your procurement process is seen as porous, it invites further exploitation from both internal and external actors.
Plus, it may also stop legitimate businesses from wanting to trade with you.
6. Check Tampering
This involves employees altering physical payments in some way, such as forging signatures, changing payees, or inflating amounts.
While digital payments have reduced this risk, it remains a threat in finance departments with weak internal controls. For instance, a Koss Corporation executive famously altered records and company checks, diverting $34 million to fund personal purchases.
7. Skimming
This relates to the theft of cash before it enters an accounting system. It’s most common in places that regularly use cash, like small stores and businesses.
Skimming relies on the “invisibility” of transactions; an example would be a seller not recording all the sales they make and taking some or all of the money for themselves. Because there’s no initial paper trail, it’s difficult to detect without real-time point-of-sale monitoring.
When kept small, skimming can go unnoticed for a long time. A good example of this is the “McMillions” McDonald’s Monopoly scam, where an employee stole winning game pieces over many years, accumulating millions in value.
8. Intellectual Property (IP) Theft
Asset misappropriation isn’t exclusive to money or company resources; it can also affect information and ideas.
IP theft refers to insiders stealing a company’s ideas or inventions. The types of things that can be stolen include trade secrets, patents, or even software and proprietary code. It’s often done by employees who have access to important information.
Even when it doesn’t directly affect the bottom line, IP theft is a big deal. Organizations can lose a lot if their secrets get out, including their reputation and competitive advantage.
One of the most well-known examples of IP theft occurred in the 2010s, when a former Coca-Cola senior chemist stole trade secrets worth approximately $120 million.
How Does Teramind Prevent Asset Misappropriation?
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Teramind’s platform provides a multi-layered defense against asset misappropriation. It uses behavioral analytics and real-time monitoring to detect, document, and block internal fraud.
The following summary maps Teramind’s features to the common forms of asset misappropriation:
1. Cash and Financial Fraud Detection
Teramind identifies unauthorized attempts to divert or manipulate company funds.
- Billing and Vendor Schemes: The software monitors for the creation of fake invoices or unauthorized modifications to vendor and billing systems.
- Accounts Payable Monitoring: It tracks access to financial records and alerts management to suspicious changes in vendor information or bank accounts.
- Expense Reimbursement Fraud: Behavioral analytics identify unusual patterns in expense submissions that may indicate false claims.
- Payroll Fraud: The system triggers alerts for unauthorized access to the company’s payroll system, helping prevent ghost employee or timesheet fraud schemes.
2. Physical and Non-Cash Asset Protection
Beyond cash, Teramind protects physical inventory and company resources from misuse.
- Inventory and Asset Theft: By establishing “normal” work patterns, the software detects anomalies that suggest an employee is attempting to hide inventory shrinkage or liabilities.
- Misuse of Resources: It monitors the use of company software and hardware, ensuring they’re not being exploited for personal gain.
- Blocking and Intervention: Teramind can automatically block malicious actions as they occur or allow administrators to take over remote desktops during a live incident.
3. Intellectual Property (IP) and Data Protection
Data is often the most valuable asset misappropriated in the digital age. Here’s how Teramind defends it:
- Exfiltration Prevention: The platform tracks file transfers, printing, and exporting of sensitive data to prevent it from being stolen.
- Trade Secret Security: It monitors access to proprietary information and confidential data, triggering alerts if unusual access patterns emerge.
- User Behavior Advisory: It analyzes communication across email, instant messaging, and social media, ensuring compliance and preventing intellectual property leaks.
4. Forensic Documentation for Legal Proceedings
A key differentiator for Teramind is its ability to create “legally defensible” records of fraudulent activity.
- Irrefutable Evidence: The software captures screen recordings and activity logs that serve as forensic-quality, court-admissible evidence during investigations.
- Immutable Audit Trails: It maintains unchangeable logs of all employee actions, supporting certified fraud examiners and legal teams in establishing the facts of a case.
FAQs
What is an Example of Asset Misappropriation?
An example of asset misappropriation is when an employee embezzles funds from their company for personal gain, such as a cashier pocketing cash from the register.
This type of employee fraud involves the unauthorized use or theft of company assets.
What Are the Three Major Classes of Asset Misappropriation?
The three major classes of asset misappropriation are theft of cash, fraudulent disbursements, and theft of inventory or other physical assets.
These forms of misappropriation involve the unauthorized acquisition or disposal of company assets for personal gain.
What Are the Characteristics of Asset Misappropriation?
The characteristics of asset misappropriation include unauthorized use or theft of company assets, manipulation of financial records, and concealment of fraudulent activity.
