Magazine article Risk Management

To Catch a Thief

Magazine article Risk Management

To Catch a Thief

Article excerpt

Recovering Assets After an Embezzlement

Contrary to popular belief, notifying law enforcement and terminating employees may not always be the proper responses when an embezzlement case is discovered in your company.

Workplace embezzlement is an increasingly common occurrence: according to the most recent U.S. Department of Justice statistics, embezzlement increased by 39% between 1990 and 2000. (And in the current economic environment this trend will likely accelerate.) But despite its frequency, an embezzlement, when uncovered, still prompts feelings of rage, betrayal and embarrassment. And before the emotional reaction subsides, companies generally take immediate, reflexively punitive steps against the employeesuspect: on-the-spot termination, hasty escort from the premises, restricted access to the company's electronic network and prompt notification of local law enforcement. While these steps may assuage the emotional wounds inflicted by the theft, a different approach may ultimately better serve a company's financial interests. If a company's primary objective is asset recovery, that company should not initially adopt the above procedures.

This admonition may seem counterintuitive. Why not immediately call law enforcement when an employee has looted a corporate bank account? Doesn't one usually call the police if a home is burglarized or a car stolen? And why not immediately terminate a disloyal employee?

The two-pronged answer is simple. First, life rarely replicates Law & Order. Burglary, car theft and other street crimes are most often committed by strangers whom the victim usually cannot identify and the police therefore cannot find and arrest. By contrast, an employer will almost always be able to identify an embezzler, if not immediately then certainly after a thorough investigation.

Second, and most importantly, law enforcement objectives and business interests frequently diverge. The criminal justice system is linear: police arrest, prosecutors take cases to trial, juries usually convict and judges sentence. And although "restitution" is frequently a component of modern sentences, during the time between embezzlement and sentencing, the embezzler's ill-gotten gains have often been depleted by legal fees and/or "personal expenses."

Corporate interests under these circumstances are often quite different from those of law enforcement. Most companies want their capital returned, perhaps followed by a firing squad at dawn for the miscreant as an example to other employees. The decision to bring charges against an embezzler, however, is generally secondary to a company's financial concerns. In fact, and not surprisingly, the chief executive of a corporation may not want an embezzlement made public at all, in the interest of avoiding disclosures to angry shareholders, second-guessing board members and intrusive reporters with embarrassing questions. Given such competing interests, the following is a tried-and-true asset recovery methodology a company should follow upon the discovery that the till has been looted.


The Critical First Step

The mere suspicion of an embezzlement should trigger an immediate, thorough investigation. Since circumstances and/ or pre-existing relationships often render it awkward for general counsel or others to interrogate high-level executives without real or imagined issues of conflict arising, outside counsel should be retained expeditiously. Time is nearly always of the essence in these circumstances.

Additionally, depending on the specific facts of each case, counsel (on behalf of the company) may wish to retain a forensic accountant and a technology expert, the former to trace and illuminate the financial scheme, the latter to pursue the electronic trail. In the technology age, rarely is anything accomplished in an office without e-mail.

As soon as practicable, the suspect employee should be interviewed. …

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