Businessman, handcuffed hands behind his back, holding $100 bills.

Embezzlement is a very specific type of fraud, and most cases involve taking money from an employer through deceit. Usually the person embezzling is the person who cuts your checks, and often they have developed an elaborate ruse to use the CIL or SILC funds to pay their own bills by altering checks or creating fake vendors or employees. Taking company money for personal use without proper authorization is embezzlement, even if the individual rationalized why the funds should belong to them, or that they were “borrowing”. As recipients of federal funds, embezzlement is a serious issue that can damage your bottom line and the integrity of your center or SILC, and can require that the funds are repaid, either by insurance, through legal steps, or with discretionary funds, back to the funder. If you suspect an employee is stealing from you, you need to handle the matter quickly and carefully. Here are some steps for you to take:

Gather initial evidence: If you suspect an employee is embezzling money or stealing property, the first step is to gather evidence to prove your suspicions. Good internal controls — reconciling the back account, checking payments to credit cards by reviewing detailed receipts, reviewing the vendor list and payroll records for names you don’t know or names that shouldn’t be there — will reveal most embezzlement. Keep a close eye on the books, and make copies of paperwork regarding suspicious transactions. You may want to require inventory of purchases from the office supply, grocery, anywhere that common items can be purchased, to make sure none of the items were snagged by the purchaser before coming into the office. Notice how many credit card bills you are processing, because you may find a new account slipped in without approval and is being used by an employee for personal expenses. There are certain things that are consistent tools used by embezzlers, and your banker or auditor can probably learn fairly quickly if theft has taken place, even before you have a clear idea of how long it has been going on or how much is missing. You want to act quickly enough the employee is not aware of the investigation and can be apprehended.

Seek advice. When you suspect embezzlement, consult with the people who can assist you in a resolution. Those include:

  • Your attorney. You will want legal guidance as you navigate a complex response to a complex employment situation.
  • Your board. The board of directors has a fiduciary responsibility related to your funds. They also need to be aware of all legal matters and of matters that may end up with negative press. Don’t let them be caught unaware
  • Your insurance agent. If you have directors and officers insurance, if your thief was bonded, or have other insurance to protect your organization from theft, his may be your only hope for repayment of the loss for you and your funders.
  • Local law enforcement. They are probably the ones that will make the initial arrest and coordinate with federal law enforcement. Because federal funds were involved, your case will likely also be handled by the FBI.
  • Your project officer at the Administration on Community Living/Independent Living Administration. You must report to your primary grantor plus other agencies whose funds to you may have been affected. You should let them know an investigation is in progress, even before you are sure of the full extent of the theft.
  • A forensic auditor or other auditor to conduct an impartial review and determine the details. To settle the situation you will need to go back several years, and will need to determine not only how much was stolen, but which of your grants were used in this process. You will have to pay your funders back for whatever stolen funds were allocated to specific grants. This repayment cannot be made with federal funds.

Complete a thorough financial review with findings. Start with a review that goes back three years, hoping that the auditor can pinpoint when the theft started. The review will need to include some specific information, including what funder(s) was the victim of the theft with you. While this is costly, it will be required at some point.

Press charges. It is tempting to try to hide the theft. You feel foolish that you were taken advantage of, and hurt and angry that it was by someone you know. You know your Center or SILC’s reputation will take a hit. However, you and your board have a responsibility to the public to assure that justice is done. Press charges and inform your funders so that they can follow up with their legal responsibilities as well. Embezzlement is a crime; and while a case can take several years to prosecute in court — and you may never get the money back, even with a restitution order, choosing to press charges can send a message that you’re serious about theft and help you get closure to a difficult situation.

Strengthen your written policies and procedures. Identify where your practices were week enough to allow the fraud, and tighten up those controls. While it can be difficult to prevent all employee theft, by establishing a training program that clearly outlines a zero-tolerance policy for employee theft, you may deter a potential embezzler. The policy should detail the steps that you’ll take if you discover theft, including prosecution. Having this written policy in place — and a signed declaration of understanding by the employee — gives you a road map for action when there is a problem and removes some of the emotional aspects of the decision.

What should you do when you discover waste, fraud or abuse of funds?

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