How to handle an embezzler

Dear Professor Bruce: During the last couple of weeks, I've noticed what appear to be financial irregularities when taking quick looks over my small business' books, and I've determined that one of my employees is embezzling funds. What steps should I take to ensure that the employee is properly brought to justice, and that my company receives the money the employee stole?

ANSWER

It has to be one of the most difficult ordeals that a small business owner will ever go through when they discover an employee has been stealing from them. The rage, humiliation, disappointment and fear can be overwhelming. Once the discovery has been made though, it is vital to control all of those emotions so that certain steps are followed to properly deal with the problem and put your company back together.

Jay B. Myers, CEO of Interactive Solutions, Inc., (Memphis, Tenn.) and author of "Keep Swinging- An Entrepreneur's Story of Overcoming Adversity and Achieving Small Business Success" offers the following tips:

First, think carefully about calling the local police and having them come over to your office. This will only cause your employees to be concerned and panic.

Second, call a certified fraud examiner (CFE) and have them come in to thoroughly examine all aspects of the theft and to validate the situation. CFE's are similar to forensic accountants and will be the most qualified to understand the scope of the crime. CFE's are vital in the reporting/recovery process as it relates to law enforcement, insurance proof of loss etc.

Third, if the theft is over $10,000 you and your CFE should contact the United States Secret Service. They are the best path for successful prosecution within the Federal Court system.

Fourth, with successful prosecution from the United States Secret Service, you have a decent chance of recovering some, if not, all of the money. In many cases, courts will order restitution which forces the criminal/thief to make monthly payments to you until the entire theft has been paid back.

There are several tips to help with the prevention of embezzlement which include:

Conduct thorough criminal and civil background checks on all employees.

Purchase a fidelity insurance policy relative to the size of your business.

Take away the opportunity to steal by segregating the accounting duties -- the person who pays the bills should not be the one who collects the money.

As company owner have all bank statements mailed to you unopened.

Carefully examine financial statements and payroll records on a regular basis -- never get lax on these internal controls

Be careful! A major embezzlement could put you out of business!

For further information, visit www.keepswingingbook.com.

Bruce Freeman is president of ProLine Communications, a marketing and public relations firm in Livingston, NJ and author of Birthing the Elephant (Ten Speed Press). E-mail questions to Bruce(at)SmallBusinessProf.com.