Essential Steps to Take When You Discover Employee Theft

What to Do If You Discover Employee Theft: Protecting Your Company, Clients, and Others

Discovering employee theft can be a distressing experience for any organization. It not only affects the financial health of your company but also erodes trust among employees, clients, and stakeholders. Dealing with such a situation requires a thoughtful and systematic approach to minimize the damage and ensure justice is served. In this article, we will discuss essential steps to take when you uncover employee theft, focusing on safeguarding your company, clients, and others affected by the misconduct.

1. Gather evidence: When suspicions of employee theft arise, it is crucial to gather concrete evidence before taking any further action. This may involve reviewing financial records, conducting internal investigations, or hiring a professional investigator. Documentation of irregularities, including dates, times, and any supporting materials, will help substantiate your claims and aid in the subsequent legal or disciplinary proceedings.
2. Notify senior management and legal counsel: Once you have sufficient evidence, inform senior management and legal counsel about the situation. Their guidance and expertise will be invaluable in navigating the legal and operational aspects of dealing with employee theft. It is essential to maintain confidentiality during this process to protect the integrity of the investigation and prevent interference from the accused employee.
3. Secure company assets: If an employee is involved in theft, it is crucial to secure company assets to prevent further losses. Change passwords, restrict access to sensitive areas or data, and review internal controls to identify any vulnerabilities that may have facilitated the theft. Implementing tighter security measures will help safeguard your company’s resources and prevent future incidents.
4. Report the theft to law enforcement: Depending on the severity and impact of the theft, it may be necessary to involve law enforcement authorities. Consult with your legal counsel to determine the appropriate course of action. They will guide you through the process of filing a police report and cooperating with any subsequent investigations. By involving law enforcement, you demonstrate your commitment to upholding the law and deter similar actions in the future.
5. Communicate with affected parties: Transparency is crucial when addressing employee theft. Depending on the nature of the theft and the individuals affected, consider informing clients, vendors, and stakeholders who may have been impacted by the employee’s actions. Timely and honest communication can help maintain trust and mitigate any potential reputational damage to your company.
6. Review and strengthen internal controls: To prevent future instances of employee theft, conduct a thorough review of your organization’s internal controls. Identify any weaknesses or loopholes that may have allowed the theft to occur and implement measures to address them. This may involve enhancing financial oversight, segregating duties, or implementing regular audits. By proactively strengthening internal controls, you minimize the risk of future thefts and maintain the integrity of your operations.
7. Pursue legal and disciplinary actions: Once the investigation is complete and the employee’s guilt is established, take appropriate legal and disciplinary actions. Consult with your legal counsel to determine the most suitable course of action, which may include termination, restitution, or pursuing civil litigation to recover damages. Consistency and fairness are crucial during this phase to maintain employee morale and send a strong message about your company’s zero-tolerance policy toward theft.

Conclusion

Discovering employee theft is an unfortunate and challenging situation for any organization. However, by taking prompt and decisive action, you can minimize the impact on your company, clients, and other stakeholders. Gathering evidence, involving senior management and legal counsel, securing company assets, notifying law enforcement if necessary, communicating with affected parties, reviewing internal controls, and pursuing legal and disciplinary actions are all essential steps to protect your organization and ensure justice is served. By adopting a proactive and comprehensive approach, you can mitigate the risks associated with employee theft and create a more secure and trustworthy work environment.

Video Transcript

What Do You Do if You Discover Employee Theft?

Well, one question is, did the employee steal from the company, your clients, or some third party? This is an issue that conjures up a lot of emotions for me. Because I one time had an employee come report to me that he had misappropriated $40,000 of client money. So I will tell you what I did.

What to Do if This Happens?

Step number one, I called up a CPA. Well, first off, I told the employee, you need to put that money back immediately today. The full amount. I then called a CPA and said, I need you to review all my financials. I need to see if there was other theft because sometimes, when people confess something. They confess only a portion of their misdeeds. I was concerned that this might be like an iceberg where I see the tip, and there is a lot more underneath. So I called the CPA and asked the CPA to carefully scrutinize first all of our client money. And then second, any other large transactions in the company, especially related to this employee.

Second, I contacted an attorney, and I said, what is my responsibility here? You might say, why did you contact an attorney when you are an attorney, and I deal with this area on a regular basis. Because I was not objective and enough removed from the situation to think clearly about it. I needed an attorney outside the situation to say, here are the steps you need to deal with. At the time, I was dealing with a lot of emotions of betrayal and anger and frustration, and remorse. I was wondering how did this happen? What did I do wrong? Who could do this sort of thing? It was emotionally, very difficult, and psychologically very difficult to process. And I needed an attorney outside the situation to give me objective advice. I also wanted the protection that comes from relying on the advice of an attorney because if later somebody accused me of handling this in a wrong way, if I sought legal counsel and relied on the advice of that attorney, I have protection under the law that I tried to do what was right. So reaching out to an attorney can provide important protection and demonstrate that you are not being negligent in your duties. By getting legal counsel and counsel from my CPA, I then was able to assess the situation and follow up. And in my circumstances, I was advised that I needed to report the misappropriation to the ethics board, which handles attorney misconduct and misappropriation of client funds. So I then did, in fact, do that.

Your responsibilities may be different. Let’s say; for example, you are the owner of a bank. You will have different government agencies that you may need to report this to. You also probably want to report it to your insurance carrier right away. And that is because in order to have protection under your insurance policy, your policy typically requires prompt notice to the insurance carrier.

Best Advice

If you discover somebody has stolen from you, your company, or some sort of third party, the best advice I can give you is to work with your CPA and lawyer to carefully analyze the circumstances that you are dealing with and make a checklist of what you need to do to properly inform any government agencies or third parties and to mitigate any harm that might come from this. Of course, the small amount of theft that you know about may be a signal that there is more out there, and so it takes some extraordinary due diligence to prevent further harm and further theft.

Do You Fire the Employee?

Most likely. Yeah. But do that with the advice of legal counsel, and usually, you want to be very careful about that. In my case, I didn’t fire the employee immediately because I was concerned that the employee would destroy evidence or take information with him that I needed to get first. So another thing I did is I immediately contacted our tech support company and had them make a backup of his computer and figure out how are we going to get his cell phone so that we can preserve that for evidence. So there is a lot to think about when dealing with employee theft, especially if it deals with a large amount or a theft from a client or somebody else’s money who is in your care.

Conclusion

If you found this video helpful and you would like more educational videos like this, feel free to subscribe to this channel. If you have other questions, put them in the comments below. I am Aaron Hall, an attorney for business owners and entrepreneurial companies. You can learn more about me at aaronhall.com. And if you would like to sign up for our free resources, go to aaronhall.com/free. It was great to be with you here today.