Misappropriation of Funds: What You Need To Know

Summary

If you have stumbled across worrying signs in your company’s account – from inconsistent records to unexplained losses – you might suspect that funds have been misappropriated. Embezzlement, misappropriation of funds, fraud… these are all terms we’re familiar with and are examples of white-collar crimes which carry serious consequences including losing your job, company fines, director disqualification and in the most serious cases imprisonment. But what do these terms mean under law and what can be done about them if your business is impacted? The truth is all of these terms are related, and we’ll define them below to clarify the subtle differences between them. Detecting misappropriation of funds can be incredibly complicated, with labyrinthine patterns needing to be drilled down into, but the sooner you start the more likely you are to uncover the truth and apprehend the perpetrator – so let’s dive straight in. Misappropriation of funds is when money goes missing from financial records. There are various types of fund misappropriation which we’ll go into below. All examples of misappropriation of funds are constituted as financial crimes, the Financial Services and Markets Act.

Key information

• •Lack of intent – someone claims they didn’t know they were misusing funds or they didn’t mean to;
• •Permission – the owner or controller of the money allowed them to use the money as they saw fit, or they were under the impression they were allowed to use the money in such a way;
• •Believed they were the owner – someone might believe they had rightful ownership or free use of funds;
• •Not enough evidence – to prove wrongful use, or the evidence is inadmissible in court due to how it was collected.
• •If you have stumbled across worrying signs in your company’s account – from inconsistent records to unexplained losses – you might suspect that funds have been misappropriated.
• •Embezzlement, misappropriation of funds, fraud… these are all terms we’re familiar with and are examples of white-collar crimes which carry serious consequences including losing your job, company fines, director disqualification and in the most serious cases imprisonment.
• •But what do these terms mean under law and what can be done about them if your business is impacted?
• •The truth is all of these terms are related, and we’ll define them below to clarify the subtle differences between them.
• •Detecting misappropriation of funds can be incredibly complicated, with labyrinthine patterns needing to be drilled down into, but the sooner you start the more likely you are to uncover the truth and apprehend the perpetrator – so let’s dive straight in.
• •Misappropriation of funds is when money goes missing from financial records. There are various types of fund misappropriation which we’ll go into below.
• •All examples of misappropriation of funds are constituted as financial crimes, the Financial Services and Markets Act 2000 defines financial crime as any 'offence involving (a) fraud or dishonesty; (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime’.
• •KPMG research revealed that in the first half of 2021, the value of alleged fraud reaching the UK courts was just under £140 million.

Practical guidance

• •Source: [Misappropriation of Funds: What You Need To Know](https://lawhive.co.uk/knowledge-hub/corporate/misappropriation-of-funds)

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