Employee dishonesty can take many forms. No one seems to be exempt, and tough economic times only make matters worse. Although embezzlement can happen at all levels, we have encountered a number of situations in small to medium sized companies where employees were trusted and often thought of as family. When embezzlement is discovered, there is not only the reality of economic loss, but a real feeling of betrayal. After discovery, your options may be limited. The key is to establish and diligently adhere to a system of checks and balances, to minimize opportunities.

Establish Procedures

The first step is to meet with your certified public accountant, or attorney, to establish the correct procedure for your business. This alone can be difficult, because in many instances your loved and trusted bookkeeper will feel like he or she isn’t trusted. Although the feeling is understandable, you can explain that it is something that must be done because (a) it is the correct business practice; and (b) it will confirm the great job your bookkeeper is currently doing. Furthermore, should your bookkeeper become ill or otherwise unable to perform his or her duties, the procedures will already be in place for the replacement. Don’t get talked out of this step, or you could be talking to us, or someone like us, under more strenuous circumstances.

Follow Your Procedures

Establishing procedures won’t help you unless you are willing to follow the established guidelines. It takes a little effort, but nothing equivalent to the forensic work associated with discovering and determining the amount of embezzlement. Where there is embezzlement, seldom is it limited to one method of stealing. Don’t stop looking after you’ve discovered one source of theft. It is like peeling an onion. In one of our cases, the CPA said he was aware of fifty ways to embezzle money, and forty-eight had been employed.


How you react when you discover your loss may have a significant impact on the extent of your recovery. Your emotions will run from anger, to embarrassment, how will you recover your loss. Although our advice is sought with regards to each of the above, our primary focus is usually on how to recover your money.
Acting fast is a proven key. As the victim you have a great deal of leverage. The fear of prosecution is a great motivator. Your initial reaction is to call the police and “throw away the key.” While this knee jerk reaction is understandable, it is seldom a motivation for repayment. Although criminal prosecutions can result in “civil compromises,” these are frequently less rewarding than can otherwise be accomplished.
Strike fast and tie up assets. Locate property and collect what you can. If there is a spouse or significant other, don’t overlook their involvement. If significant amounts were stolen, there is a good likelihood they were  suspicious of what was going on.

Call your insurance carrier. If you don’t have employee dishonesty coverage, get it. Make sure your limits are reasonable. You would be amazed at how much can go missing. We have been involved in cases for small to medium companies where the amounts exceeded $1,000,000.

The banks and credit card companies may be a source of recovery. Under the right circumstances, there can be liability for forgery, negligence and credit card fraud. Third party sources of recovery should not be overlooked, as the embezzlers may not have been a good steward of your money. Insurance claims and claims against banks and credit card companies normally require you to prosecute, but by the time you get to this stage, you normally have little to lose.

If you do not have a procedure of checks and balances, contact your professional today.

Written by:
Bitts & Hahs, Attorneys at Law
4949 SW Meadows Rd., Suite 260
Lake Oswego, OR 97035

Share this entry