What to Do If Your Company is the Victim of Theft or Embezzlement

Few things are as shocking as learning that a trusted employee or business partner has been stealing from you. In addition to dealing with the financial loss, you must also grapple with feelings of betrayal and confusion as to how it will affect your business and reputation. While embezzlement can have a significant impact on your business, approaching it like a business problem with a step-by-step, analytical approach is usually the best course of action.

Is Your Employee or Business Partner Stealing Money from You?

The first question to ask is if your suspicions are well-founded.  If you suspect your employee or business partner is stealing money from you or otherwise embezzling from your company, there are some warning signs you can look for, such as:

• The employee is engaging in secretive behavior, such as refusing to give you or others access to certain financial records, accounting documents, invoices, or receipts.
• Unexplained changes to company financial accounts, such as a newly authorized person on the account.
• Unexplained changes in your company’s financial situation, such as lower cash flow or past-due accounts.
• Irregular accounting entries, such as unknown vendors or large one-time expenses.
• Missing receipts or register tapes, corrupted computer files, or other signs of evidence being destroyed.
• Evasive answers to questions about purchases, expenses, or vendors.  Or, a reluctance to have such a conversation or repeated excuses to avoid it.

Possible Steps You Can Take If You Suspect Your Employee or Business Partner is Embezzling

If you suspect embezzlement, formulating a strategy to respond to your suspicions is essential to protecting your business.  Here are some steps that can help resolve the matter:

Investigate the Matter – Your company likely has HR-approved and required procedures for investigating internal wrongdoing.  At a minimum, those should be followed.  It is important that you take the time to carefully investigate the matter to determine if your suspicion is well-founded and to accurately assess the impact. Conducting a fair and neutral investigation will put your company in the best position to both (a) know if remedial action is necessary and (b) to defend any remedial action that was taken.  In these situation, an experienced attorney can help you conduct a discreet internal investigation that does not disrupt the work environment.

Confront the Employee Regarding Your Suspicion – After, or perhaps during, an internal investigation, you may choose to confront the employee about your suspicions.  This too should be a neutral and fair inquiry, ideally conducted in a manner already approved by your HR department.  Conducting this conversation appropriately can be critical.  For example, if litigation follows from it (e.g., a lawsuit brought by your company), this conversation will be heavily scrutinized by both parties.  Statements of both the employee and the questioner will likely be used in the litigation.  For these reasons, you may want to have a lawyer assist you with any type of confrontation or interview.

Should You Report the Matter to Law Enforcement? – Reporting your findings to law enforcement is sometimes an option and, in some instances, required.  If regulatory bodies (e.g., licensing entities or the SEC) require the identified conduct to be reported, you must do so.

But in many instances, reporting the conduct is not required.  You may decide, for any number of reasons, that you do not want law enforcement involved in the investigation.  On the other hand, you may feel that local or federal authorities should investigate, and perhaps even prosecute, the parties responsible for the embezzlement.  It is important to note that the involvement of law enforcement can have a significant impact on your business.  Your records may be reviewed, and company employees may be asked to participate in a number of interviews.

Reporting to law enforcement , however, can bring a number of benefits.  Criminal investigators may be able to obtain information and statements that you cannot, thus resulting in a more wholesome investigation.  For example, witnesses may be more cooperative with law enforcement than with the company, and authorities can compel responses through the use of grand jury subpoenas.  In addition, by letting the government take the lead on the investigation, you also let the government bear the bulk of the costs and expenses of conducting the investigation.  If the investigation results in a conviction, you may be able to file a request for restitution (i.e., a court order requiring the defendant(s) to pay you money that you lost because of the criminal conduct).

Should You File an Insurance Claim? – Employee misconduct can result in significant losses to your company.  Depending on your policy, such losses may be covered.  It is important to remember, however, that some company policies may also lead to your company’s insurance ultimately covering the expense of an attorney for your employee—even in situations where the employee’s misconduct is obvious.

Other Responses to the Misconduct

Of course, the best way to deal with embezzlement is to prevent it from ever happening. Some basic steps can help prevent this problem from occurring in the future:

• Amend company policies to prevent similar scenarios in the future.
• Limit access to sensitive information or finances to only those individuals who really need it.
• Conducting occasional audits to have a third party review your records.
• Track employee satisfaction, as disgruntled employees may be more likely to engage in this type of unethical behavior.
• Monitor employees and have supervisors present in cash transfer situations.
• Consider changes to screening and interviewing processes for future employees.

Review Your Legal Options

An experienced lawyer can review your legal options with you, which may include:

• Terminating the employee or severing the business relationship for cause
• Contacting your insurance company to make a claim for your loss
• Suing the employee or business partner
• Reporting the employee or business partner to law enforcement

How Delahunty & Edelman LLP Can Help

At Delahunty & Edelman LLP, we understand how hard you have worked for your business and how important it is to protect it. Our attorneys have decades of experience dealing with complex cases, including employee embezzlement. Additionally, our lawyers have years of experience working with law enforcement and prosecuting white-collar crimes for the federal government, so we know what to look for.

We are seasoned litigators who fight tirelessly to protect our clients’ interests. We know how to conduct a discreet internal investigation that respects your privacy and minimizes the impact on your business operations and reputation. Contact us today for a confidential consultation in which we can explain how we can help.

Patrick Delahunty

Patrick Delahunty is a former federal prosecutor with deep experience in resolving disputes. He advises individuals and companies in complex criminal, regulatory, and commercial litigation.