What Should You Do If Your Employee Embezzles Money? A Legal Perspective for Business Owners

By Barry Wax

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News

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Apr 21, 2026

Executive Summary: If your business discovers embezzlement, reporting it to the police may not always be the most effective first step. Many local agencies lack the resources to handle complex financial crimes. Hiring an attorney who can bring in a forensic accountant and deliver a complete case file to prosecutors may lead to faster and more decisive outcomes. This protects your business, controls your exposure, and ensures the theft is taken seriously.

It often starts with something small: a charge that doesn’t belong, a vendor name you don’t recognize, a number that looks off. Then you dig a little deeper and realize someone you trusted has been stealing from your business.

As painful as that discovery is, what you do next matters more. Mishandling an internal fraud case can make it harder to recover losses, cause reputational damage, and leave your business exposed to other risks. Here’s what every employer should know about dealing with employee embezzlement from a legal and practical standpoint.

Step 1: Should You Report It to the Police Right Away?

Most employers’ first instinct is to call the police. That seems like the right thing to do. But in many cases, it’s not the most effective first move.

When you report a complex financial crime to your local police department or sheriff’s office, you’re often asking them to investigate your entire company. That can open the door to other issues like internal practices, bookkeeping errors, even unrelated compliance problems.

More importantly, most local departments don’t have the staffing or financial crime investigative experience to conduct a thorough investigation. Cases can be delayed, dropped, or handed off without meaningful follow-up. If the theft doesn’t involve clear evidence or a very large sum of money, the case may not get much traction.

Step 2: Consider Bringing in a Legal Team First

An alternative and often more strategic approach is to hire an attorney with experience in corporate embezzlement cases. A lawyer in this situation does more than just give advice. They can:

• Coordinate a private investigation
• Bring in a forensic accountant to trace the stolen funds
• Compile a detailed report that outlines the fraud
• Contact the appropriate prosecutors directly with everything needed to file charges

This approach gives you more control. You limit your company’s exposure, avoid internal disruption, and package the case in a way that law enforcement is more likely to take seriously.

Step 3: Understand the Common Schemes

There are two types of embezzlement we see most often:

1. Simple Siphoning:

The employee begins by “borrowing” small amounts with the intent to repay. Eventually, it escalates into large-scale theft. Because the amounts grow slowly, it often takes years to detect, especially in businesses that place full trust in a bookkeeper or accountant.

2. Fake Vendor Fraud:

This is more sophisticated. An employee creates a business with the same name as a legitimate vendor, sometimes with just a slight variation. They open a bank account in the fake company’s name and start issuing phony invoices. On the surface, your records look clean. But the money is being funneled into the employee’s own account.

In one recent case, a company discovered this scheme had been running for years across multiple fake vendors, and the total loss exceeded $11 million. These cases often end up in federal court due to the use of interstate banks and mail fraud.

Step 4: Why Prosecutors Take These Cases More Seriously When They’re “Pre-Packaged”

State and federal prosecutors are overwhelmed. They prioritize cases that are fully documented and ready to go. When an attorney presents them with a report showing the who, what, where, when, and how—supported by bank records, timelines, and forensic accounting—they’re far more likely to take action.

You don’t want your case to sit in a backlog for a year or be passed around between departments. Having counsel who can walk the report directly into the economic crimes unit or fraud division saves time and increases the odds of real consequences for the employee who stole from you.

Step 5: Protect Your Business Going Forward

Once the immediate case is being handled, your attorney can also help you:

• Review internal controls
• Implement stronger financial oversight
• Rebuild vendor and bank relationships
• Respond to legal issues related to your staff or shareholders

This isn’t just about recovering money. It’s about restoring the trust and systems that keep your business running.

Barry Wax gives people in trouble the ability to make the right choices and regain control of their lives. If your company has been the victim of employee theft or embezzlement, Barry can help you take action quickly and intelligently without putting your business at unnecessary risk.

FAQs

1. Should I fire the employee immediately after discovering embezzlement?

Yes, but only after consulting an attorney. You want to avoid giving the employee access to records or claims of wrongful termination.

2. Can I recover the stolen money?

Possibly, through criminal restitution, a civil suit, or an insurance claim. Recovery depends on how much was taken and what assets the employee still possesses.

3. What if law enforcement doesn’t want to take the case?

This is common. That’s why packaging the case through a lawyer and forensic accountant increases the likelihood it will be prosecuted.

4. Do I need to tell my customers or investors?

It depends on your reporting obligations, contract terms, and whether funds from those parties were directly involved.

5. How do I prevent this from happening again?

Establish internal financial controls, conduct regular audits, and avoid giving a single employee unchecked authority over banking and bookkeeping.