july 2006
Contact Us
For information on other matters involving litigation and dispute resolution, or to suggest a topic for a future alert, contact:
Edward D. Shapiro
Chair
312.521.2628
eshapiro@muchshelist.com
|
Employee Theft and Embezzlement:
Minimizing Your Risk
By Irving M. Geslewitz
Every year, billions of dollars are lost nationwide due to employee theft, embezzlement and fraud. Although prevention is virtually impossible, there are a number of proactive steps that businesses can take to minimize their risk and address suspected employee theft or embezzlement.
Reducing Employee Theft While Protecting against Its Eventuality
Screen job applicants thoroughly, particularly if they will be handling money. Employment applications should always ask candidates to disclose prior felony convictions. A company should perform background checks, including the applicant's criminal and civil history. You should also verify past employment (including reasons for leaving) and references. Consider running a credit check, as individuals with irregular credit histories may be more prone to fraud. However, be sure to obtain the applicant's written consent and comply with other notification requirements of the fair credit reporting laws.
Implement policies and procedures against theft and other forms of employee dishonesty. Create and disseminate a company policy that defines exactly what constitutes theft as well as other forms of employee dishonesty, such as misreporting hours worked, submitting inaccurate expense reports and falsifying reasons for absences. In order to send a strong message that theft and dishonesty will not be tolerated, clearly outline the penalties for this sort of behavior. Include a statement that a police report will be filed if an incident of theft or embezzlement is discovered. Also consider implementing a corporate ethics policy that prohibits unethical conduct, including accepting kickbacks, bribes and gifts from customers or vendors.
Implement controls on money handling. Avoid allowing the company's finances to be controlled by one person. For example, no employee should be responsible for both recording and processing a transaction. As an added precaution, conduct unscheduled or irregularly scheduled audits, or have third-party professionals audit your books once a year. Periodically change computer passwords; make sure all checks, purchase orders and invoices are numbered consecutively; reconcile bank accounts promptly; and require that all checks over a certain amount have two signatures. When customers complain that they have not received credit for payments, personally look into the situation. Finally, set up a system whereby employees can anonymously report accounting irregularities.
Review your insurance coverage to protect for losses. Make sure you have an insurance policy in place that covers outside crime, employee theft and computer fraud, as well as a fidelity bond that insures against employee dishonesty or fraudulent activities.
Addressing Employee Theft or Embezzlement When It Occurs
Move quickly to investigate and obtain evidence. Begin by determining whether you should monitor the employee's activities or opt for immediate suspension. While it is wise to talk with managers and other employees who are directly impacted by the loss or who might have knowledge of relevant information, be sure to limit discussions on the course of investigation to those with a business need to know. Consider interviewing the suspected employee at the last stage of investigation. Describe the accounting discrepancies that have been uncovered and see if he/she offers an explanation. If the employee cooperates, consider obtaining a written statement.
If dollar amounts are large, consider involving professionals. Start by contacting your attorney, as your next steps may involve legal proceedings. You should also consider engaging a forensic accountant and/or computer data retrieval specialist.
Contact the authorities. Theft and embezzlement are crimes, and it may be necessary to contact the police, especially if the amount of your loss is large. Although the authorities will take over the investigation, you can help their efforts by providing evidence that a crime was committed. Criminal proceedings may ultimately result in restitution, if the employee has the ability to pay.
Contact your insurance carrier. Even if you are not sure you have coverage, you should report the occurrence to your insurance broker or carrier. If coverage is in place, the carrier may pay for the loss, subject to any deductibles. That amount will then be subrogated to your claims against the accused employee. Remember to always report your loss in a timely manner, as late claims may be rejected.
Consider a civil lawsuit or settlement. You can also sue the employee in civil court for your loss, especially if insurance coverage is insufficient or nonexistent and you believe the individual has assets. Alternatively, you can enter into a settlement under which the employee agrees to pay the amount owed. Use caution, however, if you have insurance coverage, as settlements without the involvement and approval of the carrier may compromise any claim you have.
Irving M. Geslewitz has extensive experience in representing employers from a broad spectrum of industries in all aspects of modern employment law, as well as traditional (union-related) labor law concerns. He regularly handles matters ranging from reviewing and helping prepare employment contracts, policies and manuals to representing clients in all types of employment-related litigation in state and federal courts and before administrative agencies. Irv can be reached at 312.521.2414 or igeslewitz@muchshelist.com.
|
