Small Firms and Solos Are Most Frequent Targets of Embezzlement - Strategist
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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 more secure.

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 oversight. 

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 problem.