Tag Archives: Embezzlement

My Christmas Wishes for Employers

It is that time of year when we are singing, “We wish you a Merry Christmas”. As an employment lawyer with 30 years of experience, I have some idea of what you as a business owner or manager are wishing this Christmas.

I know you work hard as a supervisor. Managing people every day isn’t an easy job, particularly if your employees do not have a willing attitude to try to be a good employee.

I hear from employers every day about the frustrations that you face as an employer. The average person who supervises employees spends at least 20% of her time just dealing with employee mistakes, complaints, emotions, negligence, etc., on top of trying to do all of her regular work.

So, for this Christmas, I have made a list of what I wish for you as a supervisor in terms of employees.

  • Employees who realize that the purpose of a business is to make a profit, and that requires that the employee actually be present to perform the work assigned. I recently had a matter involving an employee who was tardy repeatedly for things like a flat tire, a loose dog and “I forgot to set my alarm”, so that client meetings had to be cancelled and business was lost. I wish for you as a supervisor the employment of people who realize that these little issues chip away at a business’s profitability. Even a small company should provide a generous amount of vacation time, sick leave and holiday pay. But once an employee has used up his allotted paid time off, he needs to think seriously about getting back to work and being productive for you or the business may not be there to provide his paid vacation the next year.
  • Employees who can be trusted with the success of your business, as well as the company’s time, money, and equipment. Every year I see a number of business owners in the Panhandle lose significant amounts of money to employee embezzlement, lose equipment to employee negligence and lose profitability to employee laziness. Granted, the employer needs to have reasonable checks and balances in place to try to prevent these losses. But wouldn’t it be nice if all of your employees were the kind of people who had enough integrity to forego theft, enough caution to treat your property as theirs, and enough loyalty to go above and beyond the bare minimum effort.
  • Sober employees. Most business now drug-test when an employee is hired. This has resulted in a drop nationwide in pre-hire positive drug tests. But I still see injuries and damage done by substance-abusing employees after they have worked for the business for a while. My wish is that you don’t have to deal with those issues. You can help make my wish come true by actually requiring the occasional random drug and alcohol testing in your workplace, as well as testing immediately after any personal injury or property damage occurs at work that might have been caused by an impaired employee.
  • Employees who exercise verbal discretion. Employees who gossip, spread rumors, complain, speculate and backstab in an effort to make themselves look better simply don’t realize that respect is given to those who keep their negativity and rumor-mongering to themselves. It would be great if Santa could bring each of your employees the gift of discretion this year. As someone wise said, “Discretion is the ability to raise your eyebrow instead of your voice.”
  • Employees who appreciate feedback and even criticism because it makes them better at their job. I have often thought that the clearest sign of maturity in an employee is his ability to accept constructive criticism, or even better, to ask for it. So, I wish for you employees who know that wisdom comes from humility and accountability. You deserve those employees who are not afraid to find out if they made a mistake and to ask you the best course to avoid such mistakes in the future.
  • Employees who take pride in their work regardless of who gets the credit. “My grandfather once told me that there were two kinds of people: those who do the work and those who take the credit. He told me to try to be in the first group; there was much less competition.” – Indira Ghandi. Enough said.

Such employees sound like a dream, like a Christmas wish, don’t they? But you probably know that the best way to cultivate such employees is to lead from the top down. You must be the type of leader whose character, work ethic, sobriety, discretion and integrity are unquestionable if that is the type employee you want to employ.

As I have said before in my blog posts: “You will get the employees you deserve if you are quick-tempered, unfair, dishonest, prejudiced, undependable, selfish or disloyal to your employees. Your values, good or bad, will set the standard for everyone you supervise.”

 

         

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.  

Stop Employee Theft

In 25 years of practicing employment law, I have unfortunately had to advise many clients who have been robbed by their own employees. They have lost thousands of dollars to theft of cash and inventory. In most instances, when my client has called me with questions about employee theft, the business has already been ripped off by its employee and is now just trying to figure out whether to prosecute and if there is any way to put in an insurance claim. I would rather see my clients take some preventative measures to stop employee theft before it happens.

Prevention starts by screening applicants with thorough reference and criminal background checks. Any employee with access to the financial records, bank accounts, credit cards, cash or inventory should have a clean record both with past employers and with law enforcement.

You should also assign overlapping job duties. Many of my employers who suffered losses to employee theft trusted just one person to handle the finances, the checkbook, cash receipts, reimbursement of business expenses or the bank deposits and didn’t require a second set of eyes on these records. Even if you don’t constantly have two people double-checking these records, learn a lesson from banks. Most banks require employees in sensitive financial jobs to take their vacation time in at least one week segments so that another employee can get a good long look at the vacationing employee’s records.

Every employer should also identify those areas of the business that are at high risk for theft and conduct audits every quarter or every six months on expense reporting, cash reconciliation, firm credit cards, etc. If you stock inventory, then performing a regular count of your inventory is also important. You should protect your inventory by watching for cars parked close to loading zones, unlocked exits that should remain locked, and bulging bags.

Finally, you should know your employees. The U. S. Chamber of Commerce recommends that you watch your employee’s behavior for unusual working hours, poor work performance, defensiveness when reporting on work, an unexplained close relationship or favoritism with a supplier or customer and/or a personal lifestyle that doesn’t match the employee’s salary.

One word of caution. If you suspect an employee of theft, don’t make the mistake of falsely imprisoning that employee or defaming that employee. If you detain an employee in the workplace by restricting his movement in some way, you could be guilty of false imprisonment. Let him leave if he wants to, and then let the police track him down and arrest him later if you have proof of theft. Defamation involves publicizing to others (such as your other employees) that an employee stole from you before that fact has been clearly established. In most instances, there is no reason for anyone else to be notified that you are accusing your employee of a crime. Only when the employee has been convicted of theft can you safely report to others, such as prospective employers who call for a reference, that your former employee stole from you.