You recently discovered that one of your employees has been stealing from your company. So, what are your next steps?
According to the Association of Certified Fraud Examiner’s 2022 Report to the Nations, organizations lose approximately five percent of revenue to fraud each year. Over the years, it is likely that you will encounter fraud in your organization. For many companies and owners, this is new territory, and most are likely unsure what to do next. The steps below can protect the company and related evidence in order to proceed with the desired outcome, whether that be criminal prosecution, a civil lawsuit or just termination of the bad actor.
Five Steps for When You Discover Fraud
1. Team of Professionals: Hire a team experienced in conducting fraud investigations. The team should be comprised of outside legal counsel, a forensic accountant and possibly a computer forensic specialist. While in-house counsel and accounting staff may be included in meetings and discussions, attorneys and forensic accountants skilled in conducting investigations are able to be independent in their interviews and analysis. In addition, an employment attorney can guide you on the appropriate and legal way to handle the suspected employee.
2. Protection of Evidence: Concurrently with hiring the team of professionals, you should secure and safeguard any evidence that could be used in an investigation, including written notes, financial documents, computers, cell phones and other electronic devices. Throughout the investigation, evidence should follow a chain of custody to prevent spoliation.
3. Suspected Employee(s): Handle the suspected employee(s) with care. This does not necessarily mean terminating their employment immediately as their cooperation could aid in the investigation. However, you should restrict their physical and electronic access to the company and its data expeditiously, including the cancellation of any and all corporate credit cards for which that employee had access and changing passwords to all accounts the employee could access, including corporate or owners’ personal peer-to-peer payment platforms such as PayPal and Venmo.
4. Desired outcome: Determine the best course of action for your company. For some companies, this includes pursuing criminal or civil action against the suspected employee, and for others, they simply want to terminate the employee and file an insurance claim for commercial crime insurance, if available. If you choose to pursue a civil action against the former employee, consider the costs of the lawsuit and whether or not the bad actor has the ability to reimburse the company for any part of the theft.
5. Commercial Crime Insurance: If you have commercial crime coverage with your company’s insurance policy, be sure to timely contact your insurance provider. For most policies, you must notify the insurance company within 30 to 60 days of discovering the employee theft to initiate a claim. In addition, most if not all policies state that coverage ends upon discovering the theft.
You must file the proof of loss and all required documents within the time specified by your insurance company. Part of the policyholder’s responsibility may be to file a police report and provide insurance with the contact information for the investigating officer and/or district attorney. The proof of loss will include details of the theft and a quantification of the amount. A forensic accountant can assist you in conducting the investigation, quantifying the theft and preparing the support for the insurance claim.
Discovering that an employee has embezzled from your company can be frightening, but don’t let the fear paralyze you and hinder a proper investigation. If your organization is in need of a fraud investigation or other advisory services, Windham Brannon can help you in these endeavors – to learn more, reach out to your advisor, or contact Matt Stelzman
