An entity can lose twice in an embezzlement case. Consider these 10 actions to avoid even more revenue loss during the fraud examination and litigation.
Joe Mancha, an independent CPA, determined that deposits into the bank account of Shelby Building Supply were shorted by $285,000. He wrote a report stating the company's controller, Julie Mays, was responsible for the loss.1 The owner of Shelby Building Supply, Max Aiken, filed a proof of loss with the insurance company and recovered the policy limits of $25,000 - the maximum allowed under the policy. But Max also wanted a "pound of flesh" because he knew Julie had gambled all the money away and he would not be able to collect the loss.
Max turned the matter over to the local district attorney who took the case to the grand jury, which promptly returned an indictment. During the trial, with no more evidence than Joe Mancha's schedule and Max's testimony at trial, the jury only took 10 minutes to return an acquittal against Julie. And now there was big money at stake - Julie filed a defamation suit against Shelby Building Supply, Max, and Joe, in which she claimed - among other things - mental anguish and damage to her reputation. She asked for $1 million in damages. Julie's husband also filed a suit against the men and the company and claimed damages from "loss of consortium." He only wanted $300,000. The employer (along with its owner and accountant) were faced with double jeopardy - they were about to lose twice.
When an employee embezzles, the employer loses on several levels. Not only has the entity suffered a financial loss, but there is a loss of trust. To make matters worse, the way the case is handled can determine if there will be an additional loss of revenue when it is litigated. Here we will review what I consider 10 of the most important considerations in an embezzlement fraud examination that may keep save an entity from more than embarrassment.