Fraud and embezzlement are different in a few ways, however they both involve someone doing something they shouldn’t for some sort of gain.  This article concentrated on embezzlement, which is the breach of trust and misappropriation of entrusted resources for personal gain, as this is the most common of the two in small companies like law firms. 

I have worked with many brilliant attorneys in my career. The problem is not that these attorneys aren’t smart, it’s that, unfortunately, some people simply suck. These people are wolves preying on their friends, attacking quietly with a smile on their seemingly trustworthy faces. I personally saw it happen two times in my career.  In both cases, the attorneys allowed a close friend, that they thought would never betray them, to steal from the firm for years!  It started off slowly in both cases.  A desperate personal emergency that “forced” them to “borrow” a few dollars with the intention to pay it back.  This last part rarely, if ever, happens. 

Fraud typically occurs when someone has the 1) opportunity (improper controls / segregation of duties), 2) there is an incentive to steal (monetary gain / higher stock prices, etc.) and (3) they have rationalization to commit fraud (“the attorney is so rich, they don’t need it! I need it though! Botox is NOT cheap!” or even “my kid will not be able to get that surgery she desperately needs if I don’t do this”). Fraud doesn’t usually occur in small companies when all 3 of these components, called the Fraud Triangle, are not there.  Take one component if the Fraud Triangle away and they will typically steer clear of this risky, hurtful behavior.

If you suspect fraud in your office, look for the following main red flags:

• Behavioral changes

• Lifestyle changes

• Accounting issues

Other red flags include:

• Unwillingness to share duties

• Not taking vacation

• Replacing suppliers with close connections

• Refusal to implement internal controls

• Skipping approval steps

• Failing to keep accurate records or receipts

• Bullying colleagues

• Seeking access to areas they shouldn't

If you see any of these flags, you may have an issue.  A few changes in your procedural flow, management oversite, tone at the top and added controls will do wonders against these wolves in sheep’s clothing.  Don’t let anyone take your hard-earned profits or, worse, bankrupt your firm! Give me a call to discuss.