Last time, we discussed how you can protect your organization from embezzlement or other misappropriation of funds. But what if the theft has already occurred?
Gathering Evidence of Theft
If you have funds or property that can’t be accounted for, it’s time to investigate what happened. You’ll want to make sure that you know 1) you want to make sure that embezzlement actually occurred, and 2) who committed the theft. The investigation should begin as soon as possible. Delays can invite additional theft and make recovery of stolen property harder.
If you suspect a particular person, limiting his or her access to funds and other property during the investigation is probably a good idea. Another approach would be to leave the person in the position and watch for continued theft, but I don’t like that idea much. It continues to put the organization’s property at risk, and if word gets around that an investigation is underway, it’s not likely to be all that helpful. Confronting the person at this stage might be premature; I’d wait until you have pretty clear evidence that the person is actually stealing.
Punishing the Thief
Once you have clear evidence of who committed the theft, now it’s time to deal with the thief. It’s difficult for me to imagine a situation where no punishment would be appropriate; generally, I consider embezzlement to be fireable offense. Surprisingly, it doesn’t always work out that way. The Chronicle of Philanthropy reports that in one study, only 72% of organizations fired employees that stole from them, and 7% did nothing at all.
Why do so many organizations do so little? According to the Chronicle of Philanthropy, there are a few reasons:
- Thief’s Remorse. Sometimes the thief is sorry for what they’ve done. A person that shows genuine contrition and returns the stolen property may be able to remain in the organization. Even in those cases, however, I cannot see levying no punishment at all. At a minimum, the person should not be allowed to handle organizational property again.
- Embarrassment to the organization. Sometimes, organizations are embarrassed to admit what happened. Often, embezzlement exploits a flaw in the organization’s internal controls.
- Loss of donors. It’s possible that donors may stop giving to an organization***It’s better, I think, to admit what happened and explain how the organization is improving its controls than to try to cover up what happened.
Additionally, you may want to consider filing a police report, particularly for large thefts. The police report is helpful in any future employment actions that might be filed by the thief and in recovering any stolen funds. Additionally, if your organization carries insurance against embezzlement, you may need to file a police report before making a claim–of course, you should check your insurance policy to make sure.
Recovering Stolen Assets
Recovering stolen assets, particularly cash, is difficult. However, that’s not to say that it isn’t worth trying. In some cases, you may be able to work out repayment with the person, and in other cases, you may need to take legal action. Just like with the investigation, it’s important not to delay the process of recovery. This is especially true if you have to file suit, because your organization will have a limited amount of time to do so.
Next, use this as an opportunity to improve your controls. What vulnerabilities in your system did the thief exploit? How can this sort of thing be prevented in the future? Leaving a known vulnerability in place is absolutely unacceptable–the problem must be identified and solved.
Making these needed changes doesn’t just protect your organization, but it also helps to restore the confidence of your donors, clients, volunteers, an other employees. Handling embezzlement is an enormous drain on the organization–it takes time and energy to deal with, in addition to the financial damage. Creating solid internal controls and improving them if you ever (unfortunately) need to is vital to keeping your organization focused on accomplishing its mission.