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Making the Argument

What You Don’t Investigate Might Hurt You

By Michelle Fulton

October 21, 2004

The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.

Q: We hired a person to fill a vacancy we had for a sales manager. He was very personable and was great at sales, and as a result our business began to improve. However, our bank accounts were not reflecting the business that we were getting. We had given him access to the bank accounts, the credit cards, the whole nine yards. We trusted him and thought he was doing a good job.

One day, he didn’t show up for work. We called his house and got no answer. Finally, we got a hold of his landlord and learned that he had vacated his apartment without notice and that nobody had a clue where he went. We also found that he had left behind company bills that had gone unpaid, deposit slips that had not been deposited (he had stolen the money), and copies of sales contracts that we had no idea existed. We already know that we can sue him and press criminal charges, but is there a way to prevent this from ever happening again?

A: You are absolutely correct. You can sue him (when you find him) for all of the damages incurred regarding both the funds he allegedly took and the costs of determining the damage done (CPA fees, Private Investigator fees, Attorney fees, etc.). However, it is probably unlikely that you would ever be paid back the money he owed you.

The sad thing about a situation like this is that usually the only comfort you get comes from seeing them get convicted in criminal court. That doesn’t do much for your bottom line. The good news is that you might be able to write off the loss on your business tax return- check with your CPA as soon as possible if you have one. If you don’t have one, please get one.

As far as ensuring that something like this does not happen again, there are quite a few things you can do.

First, never designate anyone as a signatory on your bank accounts or credit cards other than the owners. If you must have another person, make sure it is someone you know and have checked out thoroughly. Second, when seeking an employee, ALWAYS have them fill out an application and then check it out- call and check his education data, his prior employment data, and run a background criminal check. Also, you can hire a private investigator for a small sum of money who can run the potential employees social through a national database to make sure he hasn’t engaged in any known criminal activity.

Also, do not allow employees to use the company credit cards unless they have been in good standing for a long period of time (roughly six months). Never execute a power of attorney or any other legal document in favor of an employee unless you know have worked with them for a long time. Most importantly, trust your gut. If it feels wrong, don’t hire them.

There is no clear cut way to ensure that embezzlement and theft doesn’t occur in your business, but by simply investigating every prospective employee’s background, you can head off most problems. For example, some red flags would be numerous jobs held in a short period of time, jobs where the person was fired, jobs that were recent but they can’t provide even a small portion of information. Now, keep in mind that I’m not saying that automatically makes them untrustworthy. It is merely an indication that perhaps you need to check into that person more closely. You should always check our references and contact former employers.

Last, foster a positive work environment. Be good to your employees- reward hard work, show appreciation, and acknowledge them with dinners or parties from time to time. When you keep your employees happy, it fosters loyalty.

Michelle Fulton is an attorney at The Fulton Law Firm, PLLC. If you have a legal problem you would like her to address, you may e-mail your request to or mail your request to her at 806 Hwy. 3, Houston, Texas 77058.

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2. The Hard Truth: Guardianship of Minors Is a Serious Issue - Plan Wisely - August 16, 2004

3. The Hard Truth: Designate Your Guardians in Accordance With the Law...and Do It Quietly - August 23, 2004 article

Legal: The Hard Truth: Landlords- Beware: Locking Out Tenants Can be Costly - Procedure for a proper lock-out - August 31, article

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Legal Help: The Hard Truth: Plan Well and Avoid the Family Feud - October 2, 2004 article

Legal Help: The Hard Truth: Security Deposits and the Burden of Proof - October 7, 2004 article

Legal Help: The Hard Truth: Most Employment is At-Will - October 14, 2004 article


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