As a business owner, you spend considerable time and resources protecting your company from external threats. Yet, the most damaging and emotionally difficult type of fraud often comes from a trusted employee, partner or bookkeeper.
Discovering that someone you relied on has betrayed your trust is a devastating moment. The actions you take in the first few hours and days are critical. A strategic and swift response can help mitigate the financial damage and set the stage for recovery. Below are three crucial steps to consider.
First: Stop the bleeding and preserve the proof
Your immediate priority is to prevent further losses. This means revoking the individual’s access to all company assets and systems. This includes changing passwords, removing them from bank accounts and securing access to the physical premises.
It is equally important to preserve all potential evidence. The instinct may be to delete files or wipe computers in anger, but you must secure all documents, electronic records and communications. This evidence is vital for any future legal action.
Second: Understand the full scope of the damage
The fraud you initially discovered may only be the tip of the iceberg. Before you can decide on a course of action, you must understand the full extent of the financial harm.
A thorough internal investigation, often with the help of a forensic accountant, is necessary. This will help you determine how the fraud was committed, how long it occurred and the total amount of the loss.
Third: Determine your path to recovery
Once you understand the situation, you can evaluate your options for legal recourse. Depending on the circumstances, this could involve filing a civil lawsuit to recover the stolen funds or making a claim on your business’s crime or fidelity insurance policy.
You may also need to report the matter to law enforcement. If the fraud has created severe financial distress for your company, other restructuring options may be necessary.
Making a strategic, not emotional, decision
Discovering internal fraud is a business crisis that requires a calm, strategic response, not one driven by emotion. If you are facing this difficult challenge, consider speaking with an experienced attorney to explore your options for recovery and protect your business’s future.