(This blog was originally published in The Business Journal in 2009 and updated recently.)

One of a small business owner’s worst nightmares is discovering that one of his or her employees has been stealing from the company.

The initial steps taken to address such a situation are strongly indicative of the results one can expect.

Initially, the employer should take one of these three actions:

• Place the employee on administrative leave.
• Suspend the employee from the workplace and not permit him or her to return until the initial investigation into the scope of the theft or dishonesty is completed.
• At the very least transfer the employee to another location.

Gather evidence

Further, the business owner should gather documentary evidence of the theft or dishonesty. And if the amounts involved are substantial enough, the employer should discharge the employee with a clear written explanation of exactly why he or she is being fired.

The explanation of the cause of the discharge will assist the employer in defending against an unemployment compensation claim or unfounded employment discrimination claim, the employee may file later.

Additionally, the discharge letter should not be sent to anyone else but the employee, nor copied to anyone else but placed only in the employee’s personnel file. This will help avoid the possibility of the employee filing suit against the employer for defamation of character.

Forensic audit

The next step, if the amount involved in the employee theft/dishonesty is substantial enough, is to have a forensic audit performed by a qualified accountant and to make a full and complete report to the local police department and provide all supporting documentation to the police investigator. Keep in mind that all information provided to the police may become public at some point in the future. So caution is advised if privacy concerns, trade secrets, or proprietary information is involved.

All statements to the police should be truthful, accurate and not exaggerated. When the employee is later interviewed by the police, it is likely that the employee will have an entirely different version of the events. The employee could even make counter-accusations against the employer of dishonesty or complicity in the employee’s theft or dishonesty.

Help from police

The employer and representatives of the employer should avoid providing sworn statements to the police, or providing sworn statements in an audio recorded interview to the police if possible.

In the event audio or video recordings of the employee theft exist, copies should be given to the police department along with the police report, and the original should be kept in a safe place with as few people as possible having access to the originals. This will later assist a prosecutor in using the video or audio evidence, and proving in court that it has not been tampered with after the original event.

If an employer takes these few initial steps, the police will likely take the investigation from there and minimize the disruption of the continuation of business.

Help from an attorney

If the amount involved in the employee theft is substantial enough, the small business owner should consult an attorney as soon as possible to decide whether a civil suit against the former employee for return of the embezzled or stolen funds or property is appropriate.

Only the small business owner can decide whether the amounts involved are substantial enough to warrant the investment of time, energy and money in a civil suit for recovery.

A civil lawsuit can take one to two years and sometimes longer if an appeal is involved. Attorneys fees can become a significant percentage of a small employee theft case. Therefore, the business owner should make a rational cost-benefit analysis to determine if the time, energy and money involved is rationally related to the expected monetary recovery.

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Michael J. McGee is an attorney with Harrington, Hoppe & Mitchell. He can be reached at mmcgee@hhmlaw.com or (330) 392-1541.