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Embezzlement issues, part I: Employers dealing with employee theft

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For an employer there may be no worse feeling than the realization that one of your employees is stealing from the company. It may start as something in the books you can't explain, something funny that your internal controls catch or it may be something that your accountant asks you about and you don't have a ready answer. That confusion begins to harden to suspicion as a pattern seems to develop: money inexplicably moves out of the company and is being moved by the same person on multiple occasions. The suspicion then may even become anger as you realize that a long time, trusted employee has been diverting company resources to their own pocket. 

So what do you do?

For employers who find themselves dealing with employee theft the most important thing to do is consult an attorney. It may start with your in house counsel. If you don't have in house counsel then began looking to hire an attorney to guide you through this time. It's crucial that the attorney you rely on has experience in criminal law or has dealt with embezzlement issues before. There are many decisions to be made as soon as employee theft is discovered and you'll need someone who has a grasp of the playing field to help you make the best ones. Decisions made early will often guide the possible outcomes later.

The first decision is often whether (or when) to confront the employee. Many employees just want the diversion to stop - to "turn off the faucet" so to speak. However, that confrontation is a critical time to attempt to gain the most evidence against an embezzling employee. It may be that waiting another thirty days to really catch the culprit in the act of diversion is the best course. Almost every employee, when confronted with the idea that they've stolen from the company, will initially deny wrongdoing. Having ready evidence to show them at the time of a confrontation is often the best way to potentially get past the denials and get some admissions from the employee. Having solid evidence to turn over to the appropriate authorities - local police or federal agencies - can be vitally important in having a prosecutable case should you decide you want the embezzling employee to face the music in a criminal case. Strong evidence will also be important to any insurance investigator should the company decide to make an insurance claim for the loss to the company. Most corporate insurance policies have provisions for dealing with theft; they should be thoroughly reviewed by the company's counsel as soon as the initial theft is detected. Even if the company decides not to make an insurance claim, it is better if it is the company's choice not to claim rather than the insurance company's decision not to pay the claim for lack of evidence of the theft.

Confronting the embezzling employee requires careful and thoughtful work. Everything must be planned ahead of time: who will speak, what will be revealed to the employee (and what won't be), which strategies will be employed (and which won't be) if the employee denies the theft. Moreover, it is vital than any workplace rights an employee has are vigorously respected. The confrontation of an embezzling employee is a critical part of holding them accountable for their theft. The parties involved in a confrontation must have an understanding that whatever happens at the confrontation will be reviewed by investigating authorities, prosecutors, judges and even juries (not to mention appellate courts and potentially the media depending on the situation). Having the right attorney giving you advice on what to do (or what not to do) is an important step in this process.

Later decisions will need to be made about how to handle the theft, whether to pursue a lawsuit or criminal prosecution (or both), whether to make an insurance claim or pursue private settlement, and what steps can be taken to recover lost assets. Often, forensic accountants need to be employed in order to track the total amount of loss or try to find hidden assets that an embezzling employee has squirreled away. A good attorney can help make you make decisions about how to handle these problems and come up with the best overall solution for the company.

Dealing with an embezzling employee can be a harrowing and even emotional process. Having the right attorney at your side is crucial to working through the loss and finding the best way forward.

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