Warning Signs of Embezzlement (and How to Stop It)

It’s a hard truth of business ownership that your staff will steal from you. Even honest staff who wouldn’t pocket a cash transaction might help themselves to an unpaid-for meal or merchandise item with a higher-than-standard employee discount. Staffers who wouldn’t do that will happily take home office supplies.

This is unavoidable, just one of the costs of doing business. But when employee dishonesty reaches into actual embezzlement – siphoning off significant amounts of money by gaming your accounting system – the theft can endanger the health of your business. Here are some of the most common warning signs that somebody might be embezzling, and what to do about them.

• Unexplained Changes in Financial Metrics including increased past due accounts, decreased collections, unexplained trouble paying expenses on time, anything that might indicate that money is going places it shouldn’t.
• Employees Becoming Over-Protective of Work, especially if that overprotectiveness includes insisting on working alone, refusal to let people touch records or reacting strongly to questions. Embezzlement is hard to cover if you allow access to records that might prove it.
• Signs of Financial Distress like borrowing money, a gambling or drug problem, mortgage troubles or even a new child. This is particularly important to watch for because it shows a potential to embezzle in the future, and you can save a lot of heartache for you and your employee if you nip that potential in the bud.
• Signs of Dissatisfaction is another indication that an employee might begin embezzling, especially if that employee’s dissatisfaction centers around not being treated “right” or not being paid enough. For some personalities, those feelings are the beginnings of justifying theft.
• Trouble with Transaction Records, like receipts going missing or register tapes being mangled or files being corrupted. If an employee is regularly, systematically stealing from the till, regular problems can be how they’re covering up the theft.

Some of these signs read like a Rorschach card: behaviors that could mean a lot of things, including embezzlement. It’s confusing, but keep these two factors in mind:

• Don’t aim at just one sign. Use a combination of indicators to push you to investigate further.
• Always remember that changed behavior is more significant than behavior itself. If one of these suddenly pops up in an employee’s attitude, that’s a bigger warning sign than an employee who’s had a habit since day one.

If you do suspect embezzlement, our experts recommend the following dos and don’ts:

• Do Call Your Lawyer. If he doesn’t specialize in firing employees and investigating employee crime, have him recommend somebody who does.
• Do Not Alert Your Staff. Don’t try to question people on your own. Stealth is essential in catching an embezzler, and most embezzlers are constantly on watch for signs they’ve been caught.
• Do Bring in Outside Advisors. Hopefully, you’re not experienced with investigating employee theft. It’s worth the investment to bring in experts. Your trade associations, lawyer and insurance company can all point you toward local resources.
• Do Not Bring in Those Advisors During the Workday. This seems like obvious advice, but remember you’ll be under emotional stress if you’re ever in this position. People under stress sometimes make silly decisions. Don’t let this be one of yours.
• Do Communicate Carefully. You will be starting a legal proceeding over this, and everything you say or email is potentially going to turn up in court. Even after you fire the embezzler, be cautious of how you speak about them in their absence. Lawsuits have succeeded on lesser things.
• Do Not Contact Law Enforcement…yet. This will panic your staff and make it much harder for you to catch the embezzler. Approach law enforcement once your lawyer and other outside advisors feel you have sufficient evidence.
• Do Keep Your Emotions In Check. It’s natural to feel angry and betrayed when a trusted employee steals from, but those emotions lead to bad decisions ranging from committing a crime yourself, to tipping off the embezzler, to dropping balls in other aspects of your business.
• Do Not Make Changes to Your Banking, Vendors or Systems. These kinds of actions, as smart as they seem, are exactly what your embezzling staff member is watching for. If you’re lucky, he’ll stop and make himself hard to catch. If you’re unlucky, he’ll take everything he can and flee.

We want to take a moment to stress that first line item: Call Your Lawyer. Laws vary from state to state, and the process of firing an employee and pressing charges is complex. If your lawyer tells you anything different from what we suggest here, trust your lawyer. It’s what you pay him to know.
Do you have an embezzlement story to share? Join the conversation by telling us your tale in the comments below! Help others gain from your hard-won experience.