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How to Handle Employee Theft, aka You Caught the Thief--Now What?

Unfortunately, thieves do not wear distinct uniforms. Instead, they look just like your office manager, your IT specialist and you. For an employer, catching a workplace thief is only the first half of the battle. If you are wondering how to handle employee theft after the thief is caught, read on.

Finding the Thief May Be Harder than It Seems

Here are just a few examples of ordinary-looking employees who victimized their own employers:

· The trusted cousin: The small business owners hired their young cousin, who was a whiz with computers, to run and upgrade the office. He used his access to embezzle company funds, to copy the contact information of vendors and customers and to secretly set up a competing business.

· The I.T. professional: A company noticed that its rival was suddenly soliciting all of its customers, despite the fact that the company closely guarded its customers' names and contact information. It turned out that one of the company's I.T. professionals had secretly struck a deal with the rival and had copied and turned over the information.

· The criminal gang: A brazen gang of criminals set out to infiltrate a company by using fake names and I.D.'s. When one member was offered a job but required to take a drug test, he had his buddy switch places. Before the buddy was permitted to take the test, a security guard examined his I.D. and failed to notice it did not match the man's face, height or weight. After being hired, the gang members gained access to the company's personnel files.

The Next Steps: How to Handle Employee Theft

In each of the above cases, the different employers faced the same issue: What to do after employee theft. Here are some steps a company in their shoes should consider taking:

1. Ensure the employee no longer has physical, electronic access, or financial access.

2. Investigate the theft and the employee to determine the extent of the damage.

3. Follow your company's disciplinary process.

4. Report the employee's theft to the police and your insurance company.

5. Avoid creating potential liability-issue the final paycheck on time and follow the "need-to-know" rule.

6. Follow applicable federal and state data breach laws.

You can read more about these steps to deal with employee theft below.

How to Handle Employee Theft: Concrete Steps You Should Consider

1. Shut the barn door: You may have heard the old saying that "there is no sense in shutting the barn door once the horse has bolted." Ignore that advice. These days the horse may still be inside the barn even though it appears he has left. This is because many employees have remote access to your data and systems. Once you discover a thieving employee you need to quickly deactivate the employee's electronic accounts and ensure he is not able to remotely access your databases, email system and other electronic resources. Remember to also alert your bank and credit card companies and ensure the employee cannot continue to incur debt for which the company will be held responsible. Also, check to see that the actual doors are shut and secure: Change the locks, codes or other security systems that the employee used to gain access to your workspace.

2. Assess the damage: Perhaps your thieving employee was discovered when a customer called to complain that you were billing her for a debt that she had already paid via a check. Do not assume that the thieving employee confined her wrongdoing to stealing checks. An employee who is not troubled by misappropriating checks will also not be troubled by using the company credit card to make personal purchases, by giving herself a raise, or by setting up phony vendors and paying herself for fictitious services and goods. You need to look at everything the employee touched. Enlist your I.T. department, your accountants, your banker, your lawyer and other trusted resources to assess the extent of the damage.

3. Follow your disciplinary process: If the thief has not fled and is still employed, follow your disciplinary process. Typically this will involve meeting with the employee, offering him a chance to explain his conduct, and then determining and documenting the appropriate discipline. Why go through the trouble? This employee's conscience is not troubled by theft and it also will not be troubled by asserting an unfounded claim of retaliatory discharge against you. Protect yourself by following your processes. Also, you might learn something useful about the employee's wrongdoings.

4. Contact your insurance agent and the police: Your company may have an insurance policy that covers employee dishonesty. If so, it is likely that the policy mandates certain steps be taken to mitigate the loss. Speak to your insurer and find out what you need to do. Also consider calling the police. Reporting the theft may lead to a criminal prosecution in which some restitution for the theft may be obtained. The police may also have some good tips for you regarding how to assess and mitigate your damage.

5. Vengeance is not thine: When you discover that an employee is a thief, you might be tempted to rent a steam roller and drive it over the employee's brand-new BMW. Try not to give in to that temptation or to any other act of vengeance. The last thing you need is to incur liability to the thieving employee. Along these same lines, be careful of what you say about the thief to other employees and third persons. The less you say, the less likely it is you will find yourself on the wrong end of a libel suit. Speaking of lawsuits, you need to ensure that you promptly pay the full amount of the employee's last paycheck. State law mandates the prompt payment of a terminated employee's paycheck and also forbids unauthorized deductions. Swallow your bile, follow the law, and promptly issue the last paycheck.

6. Determine whether you need to report a data breach: Almost every state has enacted a data breach law. These laws require that employees and customers be timely alerted when unauthorized access is gained to data containing their names, Social Security numbers and financial account information. Your employees' personnel files contain that information; so too might your customers' credit applications. Consider whether your thieving employee's actions have triggered an obligation to report a data breach.

Steps to Prevent Future Employee Theft

Once you have dealt with the damage caused by the thief, consider what you can do to protect yourself against the next unscrupulous employee. Look at how the thieving employee was able to commit his crimes. For example, did the thief have the ability to both recommend payment of checks and to write the checks? Consider separating those functions. But do not rely simply on an analysis of this particular individual and his or her crime. There are other clever criminals who are creating new ways of wrongly obtaining what is rightfully yours. Think broadly about whether your company has the necessary structure, controls and tools to prevent or quickly detect the next thief. Consult your I.T. experts, accountants, security professionals and lawyers. And keep in mind another old saying: "Experience is a dear teacher, but a fool will learn from no other."

Need Legal Advice about How to Handle Employee Theft?

Dedicated to serving our clients for more than 90 years, the attorneys at Jenkins Fenstermaker, PLLC offer employment and labor law counseling, litigation and alternative dispute resolution services. Contact us online or by calling (304) 523-2100.

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