When good employees do bad things

When you’re the owner of a small business, you may think you’re immune to the threat of employee misconduct.

You know your employees well and some may have even been with your business for years. Here’s how you can detect fraud to protect yourself, your reputation and business.

Fraud breakdown

Employee misconduct and fraud can include anything from stealing petty cash to cooking the books (see “7 tips to fight fraud,” Advisor’s Edge Report), September 2012. So it’s important to respond to minor issues before they become more severe. As much as you may want to protect a rogue employee from social backlash around the office, set an example so everyone knows the misconduct was dealt with. Document such events in the person’s file—you may need the proof should you need to dismiss the employee.

Normally, the first reaction of a small-biz owner when they discover fraud is to fire the employee. But don’t make a rash decision. In Canada, provincial legislation dictates that employees must assist with investigations.

You want the opportunity to ask the offending employee questions, or have an investigative team ask them. Working with the employee is the best way to mitigate your loss. If you fire them, they have no obligation to help. Also, dismissing the person too early could open your business to potential lawsuits. When you identify employee fraud, talk to your legal counsel about what to do, what firm-specific measures you must take to protect yourself, and how you plan to investigate.

How to preserve evidence

• Lock down the computer, cellphone and PDAs in the possession of the employee. Ensure that your IT department lock the employee out of mobile access.

• Once that’s been done, take those devices and remove them from use until experts can image them.

• Do not allow the employee to remove anything from his or her office prior to the completion of a full inventory.

• Secure any documents related to the concern: banking records, purchase orders, emails, etc. Don’t give anything you might need later a chance to disappear.

• Be sure to update any banking authorities or similar arrangements with outside service providers or vendors.

You may want to lead the investigation yourself, but you won’t be able to provide an unbiased assessment of the situation. The next step is to suspend the offender, with or without pay, based on the advice you received. Work with legal counsel to decide whether going to the police or working with an investigative firm is best.

If the issue is public, be prepared to answer some media questions. Early on, the best response is to say that you have become aware of a situation and have asked independent professionals to assess it and report back to management.

Employees need to know right away that the employee in question has been let go and will not have any access to company assets. Misconduct on a large scale is a legal—and may be a criminal—issue. You need to have solid evidence to move forward.

Keep in mind when a report is filed with the police, it’s immediately in the public domain. This is a benefit of working with an investigative firm because the details cannot be made public. Anything discovered during the course of their investigation will be kept confidential between you and your counsel.

Employee interviews are usually more successful when conducted by an experienced investigator. People often feel more comfortable speaking frankly with someone who is not in uniform.

Michael McCormack, BA, CFI, is in Investigative and Forensic Services at MNP.