In years past, employee dishonesty was recognized in straightforward terms, mainly involving the intentional misappropriation of cash or merchandise from a company by an employee. However, trends today demonstrate a dynamic shift towards sophisticated fraudulent schemes spanning several years, often involving financial professionals and the use of computers.
Due to less stringent or non-existent regulatory requirements and compliance oversight, privately-held companies are often viewed as the most vulnerable and susceptible to employee dishonesty and theft. However, it’s clear from the media headlines that publicly-traded companies, government agencies and non-profit organizations also struggle with issues stemming from dishonest acts of trusted employees.
These dishonest acts can range from a minor incident with no material financial effect, to an organizational crisis that ultimately leads to the demise of a company. The impact of employee theft on an organization will usually depend on the size and sophistication of the fraud, the status of the perpetrator within the organization, the public’s perception of whether the investigation into the allegations was handled properly and the probability of any recovery.
Generally speaking, a successful employee dishonesty investigation often proceeds as follows:
- Conduct a prompt, objective and independent investigation to gather the facts necessary to qualify the allegations and develop remedial actions, including a carefully crafted approach to disciplining/terminating/prosecuting the dishonest employee(s).
- File a timely claim/proof of loss with the insurance carrier under the fidelity bond or employee dishonesty policy and attempt to recover the loss. In order to collect under such coverage, the dishonest act typically must be a proven act of dishonesty/defalcation by an employee, whose intent was to wrongfully deprive the insured of money or property that directly caused a proven loss.
- Attempt to obtain restitution through other available legal channels, including civil litigation and the criminal justice system.
The decision to retain outside legal counsel and other forensic experts should be made when developing the investigative strategy. Although limiting the investigation to only the necessary resources and tasks is critical to controlling costs, it is important to note that many employee dishonesty policies provide additional insurance coverage for investigative costs charged by outside professionals involved in the investigation and claims preparation process.
No company is immune from the risks and damaging acts associated with dishonest employees, especially when technology provides trusted employees with greater access to a company’s assets than ever before. However, certain internal control measures can be taken in an effort to prevent, detect and deter such dishonest behavior by employees. Conducting an investigation in response to employee dishonesty allegations may not only result in significant recoveries, but it may entitle the organization to an affirmative defense should legal actions be brought by the employee at issue.
When faced with an employee dishonesty investigation, consider contacting a member of Mercadien’s Forensic & Litigation Support team. Our extensive experience working closely with executives and counsel on a variety of internal investigations allows us to discreetly and expeditiously uncover the facts and recommend remedial actions steps to protect the organization. Reach us at firstname.lastname@example.org or 609-689-9700.