Theft by a trusted employee, also called embezzlement, can leave any employer feeling upset, angry, and numb. In many cases, by the time the employee’s ongoing theft is discovered, the losses can be in the hundreds of thousands of dollars (if not more). So what can you do when an employee steals?
1. Contact your attorney immediately. This should be your first call, not the call to law enforcement. Your attorney can advise you if/when law enforcement should be involved, and at what point. You should also consult with your attorney to determine whether your insurance policy is likely to cover the loss.
2. Do your homework. Look at your financial records, including your bank statements, credit card statements, voided checks, and accounting software to determine how much of the loss you can document. Put together as much documentation as you can to prove the amount of loss.
3. Arrange a time for your attorney to come to your office. You and the attorney should then meet with the employee. We do not advise giving the employee notice prior to the meeting, unless otherwise required by law. You want to catch him “off guard.”
4. At the meeting, question the employee about the theft. Just having the attorney there will induce many people to answer honestly, as the attorney’s presence emphasizes the seriousness of the matter. Many people will admit to what they did, provide an estimate of how much they took, and tell you how they did it. This information can be helpful to you as you double-check your records and build up your proof. But be forewarned: Many embezzlers do not have an accurate idea of how much money they have taken. More often than not, they underestimate the total amount they have stolen.
5. See if the employee will provide a signed statement acknowledging the theft, the time period in which the theft occurred, and the total amount. DO NOT THREATEN THE EMPLOYEE TO OBTAIN THE STATEMENT. If the employee refuses to provide a signed statement, that is his prerogative. But if the employee does provide a signed statement, it will be helpful to you in any prosecution or civil action to recover the embezzled funds.
6. After the meeting with the employee, consult with your attorney to determine whether law enforcement should be involved. Whether to involve law enforcement is a major strategic decision. Likewise for whether state or federal authorities should prosecute the case. Generally speaking, state prosecutions can be better for getting your money back (if the employee has the means of actually repaying it), and federal prosecutions can be better for getting the employee to serve prison time. But this is all fact dependent. You really need an experienced attorney in this area to advise you on what course of action is best. Sometimes, a meaningful recovery can be obtained without any sort of prosecution. Other times, a criminal action is needed so that you can obtain a restitution order. And in other circumstances, you may need to resort to filing a civil suit. But a civil suit is typically the last resort.
7. No matter what, do not blackmail the employee to obtain a reimbursement payment from him. If you do that, you could be guilty of a crime or actionable tort yourself.
If you discover that a trusted employee has embezzled from you, contact Adams, Stepner, Woltermann & Dusing immediately and ask for attorney Lee Metzger (LMetzger@aswdlaw.com), the head of the Corporate Victim Representation Group. Every client this niche group has represented to date has obtained a judgment, restitution order, insurance coverage, or settlement to ensure compensation for their losses.
Mr. Metzger can advise you of the appropriate steps to take, and whether/when to notify the authorities. The government agency that investigates your matter could affect your potential recovery, as well as the punishments (e.g., jail time and restitution) that can be imposed on the thief. The proper way to handle each situation is fact-specific and is based on a number of factors, including the amount of loss, the method of the theft, and the duration of the crime. Once our attorneys know the pertinent facts, we can provide you with the appropriate advice on how best to proceed to Get Your Money Back!
Best Practices for Guarding Against Employee Theft
In an effort to better serve our clients and protect them from employee theft, the firm has developed the following recommendations and best practices for all the small businesses we represent:
1. Obtain crime coverage as part of your insurance package. The number one way to ensure that you are reimbursed for employee theft is to have this coverage as part of your insurance policy. The desired insurance limits will depend on your particular business finances, but $100,000 in coverage should be a bare minimum.
2. Run background checks on all job applicants whose role will include handling or having access to your company’s bank accounts, credit cards, or petty cash. The crime coverage under many policies is void with respect to any employees who have a history of dishonesty or theft.
3. A person with authorization to use the company credit card should not be the sole person reviewing the monthly credit card bills. You are more likely to be a victim of employee theft if you have an unsupervised accounting department that consists of only one person.
4. All company checks should require two signatures. Neither signatory to the account should have access to a “rubber stamp” for the other.
5. More than one person should monitor the “petty cash” kept on hand. The person who keeps the books should not be the person who reconciles/reviews the books.
6. Monitor your bank statements and credit card statements monthly for suspicious activity, and have your financial records audited yearly by your CPA. Much criminal activity is obvious if you will just stop and look for it in your financial records. Believe it or not, dishonest employees are often dumb enough to write corporate checks directly to themselves, or buy items with the company credit card and have them shipped to their home address.