Has your company ever been a victim of employee fraud? After discovering the fraud, you probably first experienced a mixture of emotions including disbelief, shock and anger, as well as uncertainty about what approach and next steps you should take. One question business owners grapple with is whether to file criminal charges against the dishonest employee. There are many factors to consider when making the decision to pursue criminal prosecution, and it is beneficial for a business owner to consult with an attorney and a forensic accountant when deciding how to proceed.
Some questions business owners have include the following:
- Do I have to file a formal criminal complaint with a law enforcement agency?
- I have some sensitive/private matters in my company, that I don’t want law enforcement looking into. Can I keep them out of it?
- I don’t have the time or money to prepare the case. Who does all the investigation: law enforcement or me?
- Do I report the incident to local law-enforcement or a federal agency?
In most cases, there is no requirement to report to law-enforcement matters including fraud, embezzlement or other types of business criminal fraud; however, there are exceptions. Some types of organizations have a statutory or regulatory requirement to report the crime, such as certain governmental agencies, banking organizations and insurance companies. A business owner may refer the fraud offense to law enforcement to send a message to its employees and take an ethical stand that illegal conduct will not be tolerated. However, the business owner will lose control of the investigation, as law-enforcement takes control of the case and looks at what they believe is relevant, which may include embarrassing information, or confidential business data or research. Depending on the severity of the crime, the amount of loss and the relationship with the employee, the employer may decide to not pursue criminal prosecution, but simply terminate the employee and demand restitution.
If the victim business decides to file a complaint, it will need to commit time and support to the law-enforcement agency during the investigation. In many violations of fraud or embezzlement, the violation will typically be investigated first by the business, who then presents the facts of the case to the law-enforcement agency. It is not uncommon for the victim business to need to develop credible evidence before referring the violation to the investigative agency. If the business does not have staff qualified to do the initial investigation, a forensic accountant specializing in these matters can be hired.
Should the victim business report the incident to local law-enforcement or a federal agency? Both local and federal authorities share a joint investigative responsibility on many fraud and embezzlement statutes. The fraud committed may be a violation of both federal crime statutes and local or state criminal statutes. Legal counsel can assist the business in making the best decision.
In order for a law-enforcement agency to take on a fraud case, there needs to be a clear violation of a criminal statute along with strong credible evidence. Understandably, the criminal justice system will be hesitant to spend resources on a weak case. If the agency takes the complaint for further investigation, it is important to be patient with the process and support law-enforcement as they proceed with their investigation. The wheels of justice can move slowly, as the agency has other complaints and cases. A business can continue to investigate the fraud internally by hiring its own forensic accountant, who can cooperate with law-enforcement. More importantly the forensic accountant can also assist with installing internal controls and safeguards to prevent more fraud from occurring.