Attorney Joseph Ferrucci Talks Employee Embezzlement

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Joseph Ferrucci, founder of Ferrucci Law Group, lists the top three tips regarding why it is imperative for small business owners to have proper controls in place to prevent employee embezzlement.

Joseph Ferrucci

Many small business owners delegate all accounting responsibilities to one or two employees but fail to implement ‘checks and balances’ to ensure that their accounting system is accurate and in order.

Employee theft results in billions of dollars in losses to employers each year. The U.S. Chamber of Commerce estimates 75% of employees steal at least once, that the incidence of employee theft is 15 times greater than external theft, and that 30% of business failures are caused by employee theft or embezzlement.

“Many small business owners delegate all accounting responsibilities to one or two employees but fail to implement ‘checks and balances’ to ensure that their accounting system is accurate and in order,” said attorney Joseph Ferrucci, who has been practicing law for twenty years. “In these situations, the business owner is particularly vulnerable to employee embezzlement.”

It is imperative, stresses Ferrucci, that business owners have proper controls in place to prevent, or at least quickly discover, employee theft and embezzlement because the likelihood of recovering the misappropriated funds is very slim for three primary reasons:    

No. 1: Most business insurance policies do not cover employee dishonesty, or significantly limit its coverage. “Most business insurance policies purchased by smaller organizations don’t provide coverage for employee dishonesty unless it is added for an additional premium, but the limits of coverage are typically only $25,000 or $50,000,” said Ferrucci. “It is best to purchase stand-alone crime insurance policies with higher coverage limits.”

No. 2: Banks’ liability for fraud and forgery is also very limited. “Many small business owners are under the misimpression that their bank will compensate them for monies stolen by employees through fraud or forgery, but the bank’s liability is severely limited by Uniform Commercial Code section 4-406,” said Ferrucci. That statute imposes a duty upon the bank’s customer to promptly review monthly statements and cancelled checks and promptly notify the bank of the discovery of unauthorized activity. If the customer fails to comply with these duties, the customer must prove that the bank was negligent by failing to follow its own internal procedures and/or procedures followed by other comparable banks in the area.

No. 3: Most employees are uncollectible. Employees that embezzle money from their employers rarely pay back any of the money they stole. “It is not very difficult for the employee to avoid having a judgment enforced against them,” said Ferrucci. “Usually, if you try to garnish their wages from a future employer, assuming they can find employment after they’ve been caught stealing, the employees will simply switch jobs once they get notice that their wages are being garnished, keeping the employer chasing them for years and usually spending more money than they are collecting.” Furthermore, alimony and child support garnishments have priority over other garnishments and, since an employee can never have more than 25% of their earnings garnished, there is usually nothing left to garnish if the employee also owes alimony or child support.

About Joseph Ferrucci, Ferrucci Law Group
Joseph Ferrucci specializes in complex business and commercial litigation for clients in Orange County and throughout California. Ferrucci Law Group is a boutique firm that provides personalized service to every business and individual it represents. For more information, please call (949) 600-5370, or visit http://www.oc-litigation.com. The law office is located at 24361 El Toro Road, Suite 220, Laguna Woods, CA 92637.

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