By: Bryant H. Byrnes, Esq.
A client of mine recently found himself in this terrible situation. A long time employee was found to have stolen funds in excess of $100,000 over a span of several years. The employee was originally hired to handle the accounts receivable and came with good references that checked out.
Over time, this fellow gained the trust and confidence of the boss and was given full access to the company’s financial records. It was only when the employee was recently out of the office for an extended period of time that discrepancies in financial records were noticed; company credit card statements were missing. Accounting information was also found to have been deleted from password-protected databases.
As the situation unfolded (and unraveled), it was discovered that the employee had been helping himself in a number of nefarious ways:
- Unauthorized purchases using company credit cards/gas cards;
- Overpayments to himself through payroll (and then hiding the records);
- Misappropriating company payments into personal accounts;
- Setting-up “phantom” vendor accounts then used to pay personal bills; and
- Forged signatures on checks.
As one can well imagine, my client was shocked beyond belief that this had been going on for so long. And the emotional blow was almost as devastating as the financial hit. He really had no idea! The violation of personal trust really, really hurt.
A long story made short, the employee was confronted. He confessed to the theft and proposed restitution in full. The matter is also currently under investigation by the local police department.
How common is this problem? It is dishearteningly common. At a recent meeting with ten contractors, two hands went up when I asked if anyone had experienced employee theft problems.
Preventing Employee Theft.
While we all hope to never have to go through this, here are a number of key ways in preventing theft:
Screen all employees throughly before hiring – running background checks and credit checks;
Be clear there is zero tolerance for employee theft of any sort;
Never allow one person to handle all business finances (access to accounts, credit cards, lines of credit, etc.);
Make sure that all checks, purchase orders, and invoices are numbered correctly – regularly check for missing numbers;
Run unscheduled surprise audits;
Review bank accounts on a regular basis for “phantom” vendors as mentioned above; and
Be sure your insurance policy covers employee theft.
Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at firstname.lastname@example.org.