Few things are as shocking to an employer as learning a trusted employee is embezzling. Often, the feeling of betrayal is as gut-wrenching as the discovery of the financial loss itself. The first instinct may be to call the police. But because embezzlement is difficult, expensive, and time-consuming to prove, local law enforcement may be reluctant to investigate and prosecute. In addition, many employers don’t want their customers or the business community to know. As a result, an employer may feel it has little chance of recovering its loss and satisfy itself with merely terminating the embezzling employee.
There is another option. An employer can set the stage for obtaining the embezzler’s confession and agreement to make restitution. This strategy increases the potential to quickly recover at least some of the stolen money, while avoiding the significant costs, publicity, and effort required to prosecute or file a civil suit.
The Initial Investigation
Embezzlement takes many forms and is discovered in many ways. Sometimes, unraveling an embezzlement begins with nothing more than a hunch. Perhaps an employee is living beyond her means or is engaging in secretive behavior, such as refusing others access to certain records or work product. Other times, the crime is revealed through an audit or by simple happenstance.
Once the employer discovers an embezzlement has occurred, it should immediately investigate the matter with the goal of developing clear and overwhelming proof of the employee’s wrongdoing. Ideally, the investigation can be conducted before the employee is aware she is suspected of embezzlement. The element of surprise greatly increases the potential for obtaining a confession and restitution.
The investigation should be conducted with the assistance of an attorney and perhaps an accountant. The focus of the investigation should be to uncover irrefutable evidence of the embezzlement. The goal isn’t to discover everything or accurately identify the entire amount stolen but rather enough to establish a theft has occurred and the employer is justified in demanding restitution and terminating the employee. It may be possible, once knowledgeable about how the embezzlement is being accomplished, for the employer to track payments or inventory to further establish clear evidence of the embezzlement.
It’s also worthwhile to perform a background check on the employee. If she has any prior convictions, the employer may gain additional leverage in its demand for restitution, once she understands cooperation may result in the employer’s disinterest in going to the authorities. To the extent possible, the employer should identify any real estate owned by the employee or other significant assets that may be available as restitution or to be pledged as collateral for an agreement to make payments over time.
Formulating a Strategy
The employer, attorney, and accountant should work together to refine the results of the initial investigation to form a picture of the likely extent of the loss as well as the potential for the employee to make restitution for all or some of the amount.
The goal here isn’t perfection but rough justice. The attorney should be focused on organizing the information to bring maximum leverage against the wayward employee at the next step, the confrontation.
Confronting the employee should occur in a private setting. The attorney, accountant (if used), and a representative of the employer should be present. The employee should be accused of nothing and should be free to leave the room if they so choose. The attorney should reveal the information to the employee in a manner that doesn’t question whether an embezzlement has occurred, but instead allows the facts to speak for themselves. Although no one can predict how an employee will react, experience shows a high percentage of embezzlers, when confronted with irrefutable evidence of their wrongdoing, will quickly realize their best option is to cooperate.
The attorney should have a confession already prepared for signature and notarization as well as a draft of the restitution agreement. The attorney should also have a prepared severance agreement. Both the restitution agreement and severance agreement can promise the employee confidentiality, provided she complies with the terms of the agreement. Depending on the circumstances, the employer can also demand an immediate payment as consideration for the restitution agreement.
The employee will want to know if the employer intends to go to the authorities. It’s best not to commit one way or the other but to let the employee know that the more cooperative and forthcoming she is, the less likely the employer will want to pursue the matter with the police.
It’s essential that employers engage experienced counsel. If handled incorrectly, the employer may inadvertently provide the employee with claims for defamation or slander, false imprisonment, wrongful termination, or even extortion.
Although every embezzlement is unique, an employer should carefully consider whether obtaining a voluntary confession coupled with a restitution agreement is the best course for its situation. A restitution agreement may result in immediate payments while avoiding publicity, the significant expense of forensic accounting, attorneys’ fees, and years of litigation. If the employee refuses to co-operate, civil and criminal prosecution avenues remain.
This article, slightly modified to note recent updates, was featured in the September issue of the Great Lakes Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.