file0001730089237 (1)The Minneapolis Star Tribune recently reported on an investigation it did into Minneapolis Public School employees’ use of district credit cards.  The Star Tribune reviewed six months of school expense records including credit card purchases totaling $1.5 million dollars.  The newspaper discovered many of the school district employees failed to follow proper expense reporting policies, including not providing receipts for purchases.  Some even made personal purchases with the school district credit cards.  The outgoing superintendent and current CEO have since repaid the school district for unauthorized purchases.

So, would this circumstance be considered employee fraud and theft?  Arguably, any time an employee is making purchases in violation of a policy it could potentially be considered theft.  The Minneapolis School District has indicated it has already made changes to its purchasing card system.  It also acknowledged other changes need to be made, such as revising the reimbursement policy regarding the amount employees who are traveling can spend on meals.  Depending on where an employee is traveling, the current amounts of $7 for breakfast, $11 for lunch and $23 for dinner may not be sufficient.

Employee fraud and theft is an important issue for all employers to be on the lookout.  My firm has found by the time fraud or theft is discovered, it has typically been happening for some time.  It is rare for an employer to discover fraud or theft on the first occurrence.  For more information on what to do if you suspect an employee is stealing from your business check, out some of our previous blog posts here and here.   

No employer is immune from theft by an employee. I have blogged and presented on the topic of employee fraud and theft in the past. Last week, Cynthia Jacobsen pled guilty to mail fraud in connection with the embezzlement of more than $1 million dollars from Minnesota Company, Land O’Lakes, where she worked as an accounts payable supervisor. She used the money to feed her gambling habit.

As the accounts payable supervisor, Ms. Jacobsen authorized payments to vendors of Land O’Lakes. Starting back in 2008, Ms. Jacobsen began listing her daughter as a vendor under various fake business names she created, and authorized payments to her daughter. Ms. Jacobsen used her home address as the address for each of the fake businesses, and she forged her daughter’s signature and cashed the checks. Her daughter was not aware of the scam, nor did she receive any of the money. It wasn’t until May 2012 when another employee at Land O’Lakes suspected Ms. Jacobsen of wrongdoing, that the embezzlement was discovered. By then Ms. Jacobsen had issued 489 bogus checks.

Interestingly, Ms. Jacobsen has had other issues with money troubles. She served probation in the early ‘90s stemming from a misdemeanor count of theft by swindle involving $17,199. She had also filed for personal bankruptcy when she worked in the accounting department of Best Buy. Both of these issues should have come up on any background check done by Land O’Lakes, and should have perhaps given a moment of pause to anyone considering hiring her in an accounting position.

The embezzlement by Ms. Jacobsen could have been prevented or discovered much sooner if Land O’Lakes had some simple business practices in place. My law partner, Marylee Abrams, has previously blogged on the importance of doing a vulnerability assessment of business practices and what to consider and implement.

Land O’Lakes is a multi-million dollar company which you would expect to conduct routine audits. It took almost four years to discover this fraud. Clearly, employees are getting cleverer about covering up their crimes, and all Employers, large or small, need to keep current on their business practices and make changes when necessary to protect their businesses and stop employee fraud and theft.

I had the pleasure of speaking yesterday at the 2010 North Central National Association of Theater Owners Convention in Minnetonka, Minnesota. I was asked to speak on the topic of Employee Fraud and Theft in the Workplace. This is a topic my law partner, Marylee Abrams, and I have blogged about in the past. In my preparation for this presentation, I discovered over a 9 month period, there have been more than 24 news stories in Minnesota about employees charged with workplace theft or fraud. In fact, in March alone, there were 9 news stories on this topic. Clearly, this is a serious issue which needs to be addressed by employers.

One of the other presenters was Gary Kissinger with the Motion Picture Association of America, who spoke on new developments in the fight against film piracy. He spoke about the problem of film piracy for theater owners and the vigilance required to stop people from pirating motion pictures. Efforts may include sting operations, surveillance cameras in the theaters and undercover officers to stop someone from illegally recording a motion picture for sale.

I would like to thank the North Central NATO association for inviting me to attend and present at their convention. It was a wonderful convention with a lot of interesting information.

Coming up: If you are interested in learning more about employee fraud/theft, Marylee and I are presenting Employee Fraud/Theft – The Enemy Within Your Business: How to Identify and Address This Important Workplace Problem” on April 28, 2010 at the Vadnais Heights City Hall. It is free to attend and lunch will be provided. Please see this flyer (pdf) for additional information and how to RSVP. We hope you will be able to join us to learn more about how to deal with employee fraud/theft and how to prevent it from happening to your business.
 

Bill Salisbury of the St. Paul Pioneer Press reported cases of fraud, theft, and embezzlement by public employees has risen in the last three years. According to Minnesota State Auditor, Rebecca Otto, the increase is in part due to the tough economic climate, staff reductions and fewer people exercising internal controls, as well good old human temptation.  People are also more likely to rationalize  doing something they normally would not do.

Otto stated, "People can see weaknesses in control systems, and may be more tempted to exploit them. They are  more likely to think that nobody will notice." My law partner, Tiffany Schmidt, recently blogged on the importance of conducting an investigation in the event an employer suspects fraud or theft. Without a thorough investigation it is extremely difficult to substantiate disciplinary decisions.

A business audit and some simple changes in business practices can go a long way to avoid employee temptation, or at least make it easier to uncover fraud and theft. Employers should first conduct a vulnerability assessment on their business practices and then consider:

  • Developing an anonymous reporting system which encourages employees to come forward and report fraud and theft.
  • Developing a business ethics policy and include it in your employee handbook.
  • Changing internal practices for money handling to insure one person does not have sole responsibility for handling finances.
  • Conducting background checks on prospective employees.
  • Working with your business banker and adding controls for cash, checks, and supplies.
  • Changing inventory tracking practices.
  • Maintaining good records on company equipment/inventory to prevent loss or misplacement.
  • Reviewing phone, credit card, and postage expenditures.
  • Spot checking workplace garbage cans and outside trash containers to prevent “ditching” things and recovering them after work hours.
  • Changing the locks and limiting access to workplace premises.
  • Password protecting sensitive business records on computers. 

Good business practices can be very effective in removing opportunity and temptation, preventing employee fraud and theft in your workplace.

 

Most employers are prone to a knee-jerk reaction when presented with evidence an employee is stealing from their business. They move quickly to terminate the suspected thief and stop the financial blood loss from their business. While this may immediately address the problem, it is short sighted and ultimately may be more costly to the business.

A more reasoned approach is to immediately remove the employee from the workplace. Short-term administrative leave will buy valuable time to assess the next strategic move. First, determine if there are any provisions in your employee handbook or policy manual which may apply. And if the workplace is unionized, a review of the collective bargaining agreement is necessary.

While many businesses may opt not to prosecute internal theft, a criminal investigation into the theft should at least be considered. A few factors to be evaluated include the amount of the theft, possible media coverage, and the impact on employee morale in your workplace. If you have insurance coverage, your policy may require an attempt to prosecute in order to make a claim. Discussions with local law enforcement and the prosecuting authority can also help in making a decision whether to criminally prosecute a workplace thief.

When the decision to prosecute has been ruled out, it may be time to conduct an employment investigation. Even if you have the smoking gun and the thief on tape stealing from your business, an investigation is still necessary to establish the facts. If the employee is a member of a union, they may have grievance rights to a hearing to challenge termination from employment. A Veteran has a statutory right in Minnesota to challenge termination from employment at a Veteran’s hearing.

An employee may also file for unemployment benefits and has the right to a hearing if benefits are denied. Additionally, a terminated employee may take the offensive and file a claim alleging discrimination or slander. Without a timely fact-finding investigation, it would be extremely difficult to meet the burden of proof necessary to defend your business in any type of post-termination appeal hearing.

Taking your time and being thorough can save your business money in the long run.