The Problem of Employee Theft
By some estimates, employee theft accounts for losses of more than a billion dollars each day in the United States. White-collar crime is rampant in Southern California, and employee theft is an increasing problem for employers. Nearly one-third of all bankruptcies are caused by internal theft.
Obviously, employee theft takes on all kinds of forms, and ranges in scope from the petty (an employee taking an improper discount) to the catastrophic (a CFO who has engaged in a sophisticated seven figure embezzlement scheme). This article addresses immediate steps that should be undertaken when an employer discovers, or suspects, that an employee has engaged in a substantial theft.
What To Do When You Discover (or Suspect) Employee Theft
1. Obtain Effective and Accurate Advice From Counsel
When facts are initially discovered that raise the concern of a theft, questions immediately present themselves: Should law enforcement be contacted? If so, when? What is the effect of contacting them? What is the effect of not immediately contacting them? To what extent will the matter become public and what effect will any publicity have on the company? What steps are proper or improper relative to an employee subject to suspicion, or who has been confirmed as having stolen company funds? Among those questions, for most victims the defining question is the probability of recovering the stolen funds.
Two things can be said with certainty: First, the initial actions taken upon the discovery of an actual or suspected instance of employee theft will define your opportunities for recovery of stolen funds. Second, taking the immediate proper action will maximize both the odds of recovering and the amount of that recovery.
Most employers simply do not have the experience or the properly trained resources to effectively assess how best to proceed. So, they are well advised to seek the assistance of a professional who has the proper training and experience in this specific area. Because the employer will of necessity be making decisions with legal impacts, the employer should retain counsel. With the assistance of that counsel, they can begin to assess the issues and formulate future steps.
2. Conduct An Effective Internal Investigation
The employer should immediately initiate an internal investigation in order to verify and properly document the nature and scope of the theft. Typically, that investigation will require balancing the competing priorities of thoroughness, speed, and secrecy. The specific steps involved in any individual investigation are beyond the scope of this article, but generally they will include some level of forensic accounting and compiling supporting evidence. In some instances, the final step might also include interviews. An attorney trained and experienced in this area can assist in defining and developing the appropriate investigation.
3. Determine Next Steps
The resulting report from the investigation will provide the foundation for determining the proper next steps. Those steps might include contacting law enforcement, initiating a civil lawsuit for recovery of the stolen funds, or both. That decision should be made in consultation with your counsel, keeping in mind a number of factors distinguishing civil and criminal actions.
With respect to the decision to contact law enforcement, the employer should keep in mind that the primary goal of law enforcement is NOT the recovery of the stolen funds. It is to prosecute the thief for his or her criminal action. Also understand that law enforcement investigations of non-violent crimes such as theft often take several months. Even then, the District Attorney may decide that there is not enough evidence to file criminal charges.
As compared to what is a typically lengthy criminal investigation, California law permits a victim of employee theft (or any theft) to file an immediate civil lawsuit against the thief without disclosing the filing. The victim can then seek an order immediately freezing the perpetrator’s assets. A Sheriff or Marshal can then seize those assets. In such a case, the court holds the assets until resolution of the case. A victim may also be entitled to recovery of all accrued interest, and in some instance even three times the amount of the loss.
4. Review Your Insurance Coverages and Contact Your Insurance Agent
Finally, some insurance policies provide coverage for employee theft or embezzlement. If so, your insurance company may reimburse you for a portion of your loss. The insurance company will require you to document your loss, further emphasizing the value and necessity of a proper and thorough internal investigation and report.
As you read this article, take a few moments to review your insurance coverage. If you do not have any coverage for employee theft or embezzlement, check with your insurer to determine how much they will charge to provide coverage as an additional benefit under your policy.
The moment of realization for a victim of employee theft can be both devastating and paralyzing. Taking the steps outlined above will dramatically increase the odds of recovering your money.
Mr. Kirk received his Juris Doctor degree cum laude from McGeorge School of Law in Sacramento in 1986. Mr. Kirk is a partner at Kirk & Toberty, Attorneys At Law in Irvine and is admitted to practice law in the State of California, the United States District Courts for the Southern and Central Districts of California, and the Ninth Circuit Court of Appeals. He is also a Certified Fraud Examiner. He has represented victims of employee theft, fraud, and embezzlement for more than twenty years and has developed innovative solutions under California laws for victims to quickly and efficiently recover stolen and embezzled funds.