Theft by Fraud in the Workplace

Listen to this article

By Brent D. Nistler and Paul A. Rodrigues

Increasingly, business owners find themselves the victims of employee theft. It is often the employees put in a position of trust to handle the money and the books that are the perpetrators.

Employees have become increasingly sophisticated at concealing theft through fraudulent accounting entries and documents.

When they finally get caught, it is very likely the last in a series of thefts. While a business owner may feel temporary satisfaction by accusing an employee, firing them on the spot and calling the police, a strategic approach is critical to maximize recovery.

A business is more likely to recover money from an insurance carrier than the “fraudster” or other parties.

Policies vary widely in the types of fraud protection they provide and often contain nuanced coverage provisions. Therefore, the business owner and an attorney should carefully examine the policies and the exclusions within them.

To ensure maximized recovery and minimized costs, the attorney should meet with an experienced Certified Fraud Examiner (“CFE”) and create a scope of work that is tailored to proving covered acts. Securing a confession to covered acts is ideal. Once an employee is terminated, it is almost impossible to interview the employee and obtain such a confession. An employee that is kept on and interviewed may want to cooperate to do his own damage control. In fact, many of these “fraudsters” have a history of trying to talk their way out of trouble. This self-serving approach creates a window of opportunity for a CFE to acquire key information.

Police involvement prior to an internal investigation can put a fraud victim at a disadvantage in several respects. First, a fraudster is less likely to provide information, fearing criminal penalties. Second, if police have evidence of the single last act of theft, they may not be interested in unraveling the entire scheme, because they already have a criminal charge. Third, once a criminal charge is filed, the fraudster will either hire an attorney or have one appointed. For the same reasons that a CFE will want to interview the fraudster, the defense attorney will want the defendant to remain silent and instead vigorously defend the charges.

In the event litigation is initiated against the insurer, a CFE can assist in maximizing recovery. As the factual investigator, a CFE is in the best position to serve as a fact witness. If the insurer knows the victim is ready for trial with professional and polished factual testimony, the insurer may be more likely to settle. A CFE can advise a victim how to mitigate damages going forward, helping counter an argument that the victim failed to mitigate damages.

Just as every case is different, so is every employee theft case. What is important to remember is that (1) employers uncovering theft are likely just seeing the tip of the iceberg; (2) attorneys and CFE’s can maximize recovery by conducting an internal investigation and (3) police and prosecutors will most often benefit from and appreciate the results of an immediate internal investigation conducted by attorneys and CFEs.

Brent D. Nistler, principal, Nistler Law Office, S.C., has extensive experience in the courtroom, having tried over 40 jury trials and having conducted well over 100 contested hearings. He has lectured locally and nationally on trial preparation and the role of experts in litigation. Prior to founding Nistler Law Office, Brent was an Assistant District Attorney for Milwaukee County.

.

.

Paul A. Rodrigues, CPA, MST, CFE, CFF firm principal Chortek & Gottschalk, LLP, heads up the firm’s fraud and litigation practice.  He has experience in numerous Forensic, Fraud and Litigation engagements ranging from $1-85 million. Rodrigues currently serves on the AICPA’s Litigation Services Task Force and is designated as the AICPA’s CFF Champion for the State of Wisconsin.