Small Firms and Solos Are Most Frequent Targets of Embezzlement
You work hard to make your money, especially in tough times when business can be hard to come by. The last thing you want is for a partner or employee to steal money from the cookie jar while you're concentrating on representing your clients.
Unfortunately, if you're a small firm or solo attorney, it's much more likely to happen to you than it is to a large or mid-size firm.
There have been a number of recent news reports about employees embezzling funds from law firms. An excellent article
in the National Law Journal offers some theories about the sudden rise
in small firm embezzlement, discusses the features of small firms that
make them more susceptible to theft, and goes over ways to make firms
The obvious reason for the increase in embezzlement
cases is the recession, according to the article. Employees fall on
hard times and begin stealing from their employers. Conversely, those
employers start keeping a closer watch on the bottom line as things get
leaner and leaner. As a consequence, there are more employees
embezzling and more employers discovering the embezzlement.
But what about small firms renders them more open to theft? First of
all, according to the piece, small firms often tend to have
correspondingly small staffs. Many times, there is one person handling
both accounts payable and receivable. This situation allows that
person to funnel money out of the firms coffers with little or no
Additionally, attorneys must maintain separate client accounts, which
creates large pools of money that many employees may find difficult to
resist when they fall on hard times.
Overall, a general lack of procedures to place a check on any one
person's ability to move around large sums of money is at the root of
the cause. There are many things law firms should do to address this.
First, insurance always helps. Buying a policy that covers intentional
acts will help a firm recoup some of the losses from theft, whereas
firms without insurance don't often see their money again.
Firms should also break up the responsibilities for accounts receivable
and payable, as well as monitor accounts with heavy activity. Routine
audits will also catch any irregularities, as well as let employees
know that you're keeping a watchful eye.
Finally, all firms should check to ensure that they comply with their
state's ethical rules for managing client money. Lawyer have a legal
fiduciary duty to their clients to protect their money, so if client
funds are stolen, the attorney could be on the hook.
Just remember: even if it's their
money that's stolen, it's your