Tag Archives: Criminal Background

Six Steps to Preventing and Reacting to Employee Embezzlement

This week’s local headlines involve the city manager of Sunray, formerly the police chief and city manager of Panhandle, being accused of employee embezzlement. Rob Roach was arrested this week after an investigation by the Texas Rangers for alleged theft by a public official of property between $30,000 and $150,000.

I have no idea about Mr. Roach’s guilt or innocence, but the news did remind me about one of the most disappointing things about my 30 years of law practice in Amarillo, Texas–the large number of times I have had to help an employer who has been ripped off by a trusted employee.

I have seen employees use company credit cards for personal purchases (how many law firms need to be buying diapers at Sam’s?), steal cash paid by a patient for a medical visit, forge signatures on checks made out to the employee (one trusted employee did this while her boss was undergoing chemotherapy), turn in fictitious business expenses, and create false company payrolls or bank accounts.

Unfortunately, employee embezzlement is not unusual in our area, but it is often preventable. We Texans tend to be trusting people, but you wouldn’t just leave the front door to your house open with a sign pointing out where you keep the good jewelry. As a business owner or manager, you should be just as wise about protecting your business and your livelihood from thieves.

Here are six steps that you can take to help curb any embezzlement by your staff:

  1. Set the tone. Do you as a business owner or manager demonstrate integrity in how you do business? Your employees are taking their cues from you. If you cheat on your taxes, overcharge your customers or rip off your suppliers, don’t be surprised if your employees begin to feel that they are entitled to cheat you as well.
  2. Hire well. If an employee is going to be handling money in your business or given a company credit card, be sure to do a criminal background check (following all the Fair Credit Reporting Act requirements for doing so). Check all of the applicant’s references and past employers, asking specific questions about the potential employee’s integrity.
  3. Reduce the opportunity for theft. Guard which ones of your employees will have access to company goods and cash. Protect your keys, passwords, and access to your checks, your online banking and all accounting records. Use the built-in protections of your software. Quick Books, for example, will allow you to set up limited access for certain functions so that no employee has free rein with all of your bookkeeping. Require weekly or monthly balance sheets, budgets and profit and loss reports and study them carefully. In addition, train yourself to use your accounting program so you can randomly double-check things yourself.
  4. Utilize more than one person for the bookkeeping. You should have checks and balances in place, such as having a different person sign the checks than the one who printed them. If your customers pay in cash, your system for receiving the deposits, writing receipts, and reconciling the cash to the accounts must be clear and followed religiously. Cross-train more than one person for each job so that there is someone always available to audit the other’s handling of the money. Take a cue from banks, which often require their financial personnel to take vacations lasting at least one week so that another person can review the absent employee’s money-handling and lending procedures during that break.
  5. Watch employees who are at risk. Triggers such as gambling, addiction and family stressors often proceed employee theft. You must be aware of what is going on in your employee’s lives outside of work if you want to prevent misconduct inside of work. Also, keep in mind that many of your employees have financial problems every day, even without specific triggers. It is just a fact that Americans tend to live beyond their means. Providing free financial education and guidance may not seem like your job, but it could prevent an employee’s desperate attempt to embezzle from you.
  6. Consider surveillance of your workplace. While audio recordings create potential federal wiretapping issues, you can always install video surveillance of your workplace. You can also search employee emails and physical surroundings, like desks. Of course, you need to talk to your employment lawyer before starting these activities to get the proper consents and notices and make sure you are not violating privacy rules, but if you believe some surveillance or searching is the best way for you to protect your property, you should explore this option.

Despite all precautions, you may someday suspect that an employee has embezzled from you. If you are unfortunate enough to be ripped off by an employee, here are the six steps to reacting to the theft:

  1. Internal investigation. You can put an employee you suspect of embezzlement on a suspension while you investigate. Get help from your employment attorney as you gather documents and talk to coworkers so that you understand exactly what happened and how much was stolen.
  2. Confront the employee. Before you fire the suspect, have a face-to-face meeting with the employee to allow the employee to explain, if possible. If the evidence still demonstrates that the employee is guilty, then talk to the employee about a confession (in writing) and repayment of the debt. Once caught, some employees are ashamed and cooperative. However, do not block the employee from walking out (you will be accused of false imprisonment) or defame the employee by sharing information about the theft with those who have no pressing business need to know.
  3. Fire the employee. Don’t worry about a wrongful termination suit or unemployment claim. Clear evidence of theft by the employee is one of the strongest defenses to any kind of legal complaint by a former employee. However, be very careful about deducting your losses from the employee’s final paycheck. The employer has the burden to demonstrate that the employee is personally and directly responsible for the theft before the deduction can be taken, so make sure your evidence is solid.
  4. Alert your insurance company. Most business insurance policies include an employee theft provision. You may be able to recoup some of your losses with insurance. File a claim with the insurance company and provide it with the evidence. Just understand that often the insurance company will insist that you also involve the police.
  5. Prosecute the theft. Your insurance company may require this before reimbursing you for your losses. More importantly, you need to prosecute to prevent the employee from doing this to another employer. Getting away with a theft once makes it more likely the employee will steal again.
  6. Analyze and correct your procedures. Do a deep dive into your security vulnerabilities that led to the embezzlement. Did you allow one person too much access? Were you sloppy with your checks and balances? Did you fail to review your credit card statements? You need to understand why this happened and how to prevent it in the future.  

Simple Hiring Checklist for Texas Employers

hiring-signHiring in Texas can be done in a very efficient and effective manner that reduces your chances of violating employment laws if you follow this simple hiring checklist. While large employers may need to add many more steps, I have found in 25+ years of law practice that many small employers aren’t even doing these simple steps, but should be:

 

  • Is one well-trained centralized manager with human resources experience doing the hiring instead of a group of supervisors who might ask the wrong questions?
  • Do you have a job description of the job for which you are hiring so you know the job-related qualifications?
  • Did you carefully word your job advertising so as not to discriminate?
  • If you require that an application be completed, is your application form up to date and without legal pitfalls?
  • Does the interview focus only on job-related qualifications and not personal information?
  • Do you stay away from open-ended questions like “Tell me about yourself”, which could elicit all kinds of information from the applicant that could be considered the basis of a discrimination claim?
  • Is the interviewer using an outline so that each applicant is asked the same questions and you can compare apples to apples rather than relying on the interviewer’s conversation skills and “gut reaction”?
  • Do not ask questions in the interview about the following topics. If this seems like a whole bunch of rules to remember, try focusing on this one rule: If your question isn’t related to how the applicant could perform the job duties, don’t ask it.
    • Race or color (photographs should not be requested)
    • Gender or marital status or sexual orientation
    • Whether applicant has young children, what his/her daycare arrangements are, or other family questions.
    • Age, including date of birth or when the applicant graduated from high school
    • Religion, including “Where do you go to church?” and “What do you do with your Sundays?”
    • Union membership or affiliation
    • Criminal arrests or convictions (you can run a background check if you decide to actually offer the job, but you must comply with the Fair Credit Reporting Act in obtaining the background check)
    • National origin or ethnicity (don’t ask about an applicant’s birthplace, accent, parentage, ancestry).
    • Citizenship (only inquire into an applicant’s eligibility to work in the United States, not their citizenship).
    • Education beyond what is necessary for the job (inflated educational requirements can have a chilling effect on minority applicants; therefore only ask educational questions that are relevant to the actual job responsibilities).
    • What clubs and organizations do you belong to? What causes do you support? (this could reveal illnesses, religious beliefs, family issues, marital status, race and other grounds on which you could be accused of discriminating).
    • Are you pregnant? Are you planning on having kids? (pregnancy and/or gender discrimination).
    • Have you ever declared bankruptcy? (discrimination under the Bankruptcy Act).
    • Is English your first language? Do you know that we have an English-only policy? (national origin discrimination)
    • Do you have elderly parents or an illness in the family that would take you away from work? (disability discrimination).
  • Do not ask the following questions in an interview that could violate the Americans with Disabilities Act:
    • Whether an applicant needs a reasonable accommodation to perform the job, unless the disability is apparent or the applicant voluntarily divulges it.
    • Details of an applicant’s worker’s compensation history.
    • Whether the applicant can perform “major life activities,” such as standing, lifting and walking.
    • Whether the applicant has any physical or mental impairments.
    • Whether the applicant is taking prescription medication or any other lawful drugs.
    • If the applicant has used illegal drugs in the past or has ever been addicted to drugs.
    • Whether the applicant has participated in an alcohol or drug rehabilitation program.
    • How frequently the applicant consumes alcoholic beverages.
  • Certain questions are permissible under the ADA:
    • Whether an applicant can perform the essential functions of the job.
    • How the applicant will perform the essential functions of the job, if all applicants are asked this question.
    • Whether an applicant needs reasonable accommodation for the hiring process.
    • Whether an applicant can meet the employer’s attendance requirements.
    • Whether an applicant has ever been convicted of driving under the influence of alcohol or drug if driving is an essential duty of the job.
    • Whether an applicant is a current illegal drug user (drug testing the successful applicant after a conditional offer of the job is the best way to handle this).

Once you think you have narrowed your choices down to the applicant that you would like to hire, you can make a job offer conditional upon the results of these items: Continue reading Simple Hiring Checklist for Texas Employers

Ban the Felony Box on Applications

If your employment application asks whether the applicant has ever been convicted of a felony, you may need to consider whether to “ban-the-box” that asks that question of your applicants. Why? Because nationally, over 100 cities and counties and over 185 million people live in a ban-the-box or fair-chance jurisdiction.  In addition, the Equal Employment Opportunity Commission is gunning for employers who exclude everyone with a criminal history from employment.

restrained-1188171

The “ban the box” movement seeks to have employers consider an individual candidate’s job qualifications while prohibiting the employers from taking into account a candidate’s criminal history in the beginning of the application process.  Ban-the-box aims to provide applicants with a “fair chance” at employment by delaying any consideration of criminal history until a preliminary job offer is made.

Austin is the first city in Texas to “ban the box,” but it is likely that more areas of the Lone Star State will follow in the near future.  As of March 24, 2016, Austin passed the Fair Chance Hiring Ordinance, which prohibits employers from asking about or taking under consideration the criminal history of an individual until after making a conditional employment offer. While this ordinance does not cover state agencies or federal employment, it does apply to any private organization with 15 employees or more in the Austin city limits.

So Texas Panhandle employers don’t have to comply with the Austin ordinance if they have no employees in Austin, but they do need to worry about the EEOC claiming that a local employer discriminates in their hiring on the basis of race or ethnicity (it is the official position of the EEOC that “national data supports a finding that criminal record exclusions have a disparate impact based on race and national origin. The national data provides a basis for the Commission to investigate Title VII disparate impact charges challenging criminal record exclusions”).

So the wise employer will go ahead and take the “ever been convicted of a felony” question off of the application for employment. In addition, for both prudence and economic reasons (detailed criminal background checks aren’t cheap), smart employers will wait until they actually make a conditional job offer before checking the criminal record of a potential employee.

In addition, an employer should not: Continue reading Ban the Felony Box on Applications