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Tips from an Attorney on Dealing with Employee Embezzlement

Before and After the Embezzlement Happens

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What is Embezzlement
Embezzlement is the act of wrongfully appropriating funds that have been entrusted into the care of another but which are owned by someone else. The most common example of embezzlement is by employees. Anyone with a fiduciary responsibility, that is, a position of trust dealing with financial matters, can be charged with embezzlement. Employee theft is also a significant problem for businesses, and both can drain a company of its assets.

Guest author and attorney Lynn Palac has some tips for preventing employee embezzlement and theft and how to deal with the situation after the embezzlement is detected.

Preventing Employee Embezzlement and Theft

Running a business and having the necessity and ability to hire employees to work for you means that business is successful. Unfortunately, hiring people to work for you involves an element of trust and often that trust is used to steal from you.

The most difficult situation for small business owners is when a long-time trusted employee steals from them. Often it is because that person has fallen on hard times and plans on repaying the business before anyone notices. Other times that person has made a career of stealing from your business. To minimize opportunities for employee embezzlement or theft:

  • Don't allow one employee to be in charge of all the financial responsibilities, including preparation of financial reports.. Have a system of checks and balances in place and be aware of what is going on with your money.
  • Keep your own set of business records. This means backing up records that are kept on computer and not allowing employees to have access to records outside company hours where they can be watched. If an employee suspects you may be on to them they may be able to alter or destroy records needed to prove the theft.
  • If you are a corporate officer, do not allow ANY employee to sign checks or documents for you; you don't want to give away this important responsibility.

Dealing with an Embezzlement Situation

  • Don't arrange for an employee caught embezzling to repay you on your own. Notify the police immediately and save sympathy for the courtroom. The vast majority of theft cases are resolved with a period of probation and restitution and not incarceration. Law enforcement is less likely to pursue your case if you use them a as a collection agency when the employee stops repaying you.
  • Don't recycle surveillance video footage. Yes, it's expensive to keep all videos, but you may need to look back at old video to view an employee’s actions once you learn of the theft.
  • Don't do your own investigation or hire someone to do it for you. The police are the best authority to investigate and the only authority that will be reliable if testimony is needed in court. When the investigator has been hired by you, there is an inherent bias because you are paying that investigator. The police have no personal stake or interest in your case so their statements are normally viewed to be without bias. Also, where the investigator may be a type of loss-prevention personnel, they may not remain at the job very long. By the time the case is to go to trial it may be difficult to track them down and persuade them to come in and testify.
  • Don't speak to the press about your case. While you might think releasing information to the public might bolster your side of the case, it also gives the offender a chance to learn what evidence or information you may be using against them and gives the offender's attorney time to build a defense against it.

Finally, remember that when faced with the possibility of arrest and prosecution people will often say and do anything to keep it from happening. You spend a lot of time and money creating a successful business and should view protecting yourself from employee theft as mandatory in sustaining that business.

Read more tips for detecting and preventing employee theft and embezzlement.

Lynn Palac spent over ten years as a prosecutor for the Cook County State’s Attorney’s Office prosecuting crimes from traffic and DUI to drug, theft and violent felony offenses. She joined Waltz, Palmer & Dawson in the Chicago area and now uses that knowledge and experience to represent and defend clients. If you have any questions regarding employee theft you can contact her at 847-253-8800 or lpalac@wpdlegal.com.

Disclaimer
The information provided by Lynn Palac and on this site is for general information only and is not intended to be legal advice. Before you take any action on an employee issue, consult an employment attorney.

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