Your Best Options for Getting Your Money Back

Reprinted with permission from Fraud Matters Newsletter of CPA America.

Your best options for getting your stolen money back

If you find yourself a victim of fraud by one of your own employees, you are not alone.

The typical organization loses 6 percent of its annual revenues to occupational fraud, according to the 2004 Report to Nation on Occupational Fraud and Abuse, Association of Certified Fraud Examiners. A well-designed plan can help you maximize your recovery.

When fraud is discovered and the perpetrators identified, you should seek professional assistance. A certified fraud examiner and/or an attorney can assist you in navigating through your options.

Keeping it Quiet

The suspected perpetrator can be interviewed by the organization or its representatives. In some instances, after a quick admission of guilt, the employee can be terminated and a private restitution agreement between the parties can be negotiated.

Criminal prosecution may be avoided by establishing a formal installment note, with guarantees. Some organizations favor this approach because they want to avoid negative publicity that could result from the media highlighting their failure to safeguard themselves and maintain adequate controls.

However, history has shown that if the punishment isn’t severe, a new employer will become the next victim. Additionally, most perpetrators of fraud don’t have the means to repay what they embezzled unless the amounts are small or someone loans them the money to reimburse the organization

Using the Authorities

Another option is too alert the police. They will review your evidence and interview the perpetrator. An arrest may follow and the District Attorney’s office will become involved.

Most of the smaller white-collar criminal cases are plea-bargained and don’t proceed to trial. It is common for the D.A.’s office to offer leniency if some sort of restitution is made, especially for first-time offenders.

Prosecution sends a strong message to the rest of your employees. In addition, you may receive some level of reimbursement for your losses.

But beware that the judgment lodged against the perpetrator may represent the easiest amount that can be proved. A skilled fraud examiner can assist by handing the prosecutor an iron-clad case identifying the highest amount possible to ensure that your restitution order is maximized.

Proceeding with Civil Action

If you secure a confession or the perpetrator is indicted, a civil proceeding could be advantageous. A civil judgment in your favor can help secure a position on the thief’s assets while the criminal case proceeds. A criminal case can easily stretch out over a year. Meanwhile, whatever assets the perpetrator amassed could be squandered. A judgment may protect your interests.

A civil action can proceed simultaneously with a criminal proceeding. A civil proceeding seeking additional restitution can be lodged if the loss amount charged in the criminal case ends up being less than the actual loss incurred. This is especially important when your insurance company requires proof of loss before paying a claim.

Filing an Insurance Claim

Your organization may have insurance coverage to reimburse you for your loss. The insurance company must be notified as soon as the incident is discovered to increase your ability to collect against your policy.

Your claim will be restricted to the policy limits. Most policies require a conviction or judgment against the perpetrator to prove a claim. It’s important to understand what your insurance company will require and what it will reimburse before proceeding too far into your case and incurring additional expenses that will drive your loss higher.

Moving Quickly to Close the Loopholes

Once you suspect a fraud, move quickly to secure your organization. Close the loopholes and prevent further pilferage by tightening your controls. Seeking professional, experienced guidance can assist your organization in maximizing your recovery when you become a victim of occupational fraud.

James I. Marasco, CPA/CFF, CFE, CIA
Jim is a partner at EFP Rotenberg. He brings more than 18 years of public accounting and auditing experience. He is a full-time management consultant and travels extensively throughout the country while leading StoneBridge Business Partners (an EFP Rotenberg affiliate company). Read more about Jim. Article republished with the permission of CPAmerica.