What Small Business Owners Should Know About Embezzlement

If you own a small company where you personally know and interact with everyone who works for you, it can be hard to fathom that one of those people would ever steal from you. But the fact is, embezzlement happens all the time, even at small, family-owned businesses.

According to a 2017 study on white-collar crime by the U.S. insurance company Hiscox, the majority of embezzlement (55%) occurs at companies with fewer than 100 employees. And because these companies are small, embezzlement can impact these organizations much more severely than a similar crime would a larger company with deeper pockets. The study found that the median loss for a single incident of embezzlement for small businesses is nearly $290,000—which could prove fatal for some companies.

Given the potential damage embezzlement can cause, we’ve highlighted some of the key factors associated with small-business embezzlement from the Hiscox study, along with offering suggestions for preventing such crimes and what you should do if you suspect someone is stealing from you.

The usual suspects

Like most other crimes, there aren’t any characteristics specific to all embezzlers. But the Hiscox study did find a few interesting commonalities among the most frequent perpetrators:

  • Embezzlement takes place at all levels, but executives and those in management are the most frequent culprits.
  • Women are slightly more likely to embezzle (51%) than their male counterparts.
  • Embezzlers are typically in their mid- to late-40s.
  • Embezzlement can occur in any department, but most incidents (37%) occur in finance or accounting.
  • Embezzlers are most likely to be individuals who mostly work alone.

Common schemes and scams

For those with smarts, particularly in bookkeeping and accounting, there are numerous ways to skim money. The most common method is also one of the easiest—theft of funds. Making up 34% of all cases, this typically involves the transfer of their employer’s cash or deposits into a bank account they control.

The second most popular method is check fraud, whereby an embezzler forges or alter’s checks, which accounts for 22% of cases. About 14% of incidents involve vendor invoicing and false billing. Here, the perpetrators alter or forge invoices from real vendors, or they make up fake vendor companies, invoice their employers, and route the payments to their own accounts.

Credit card fraud accounts for about 10% of cases and is most often committed by managers, who make personal purchases on company cards or issue themselves unauthorized cards. Other, less common embezzlement methods include property/merchandise theft, payroll fraud, and fraudulent loans taken out in the company’s name.

Notably, embezzlement rarely involves a single big score. Most incidents entail fairly small amounts of money being stolen over a period of several years. In fact, more than a quarter of embezzlement cases lasted for five years or longer.

Embezzlement prevention

To protect your company, Hiscox suggests implementing a system of checks and balances, such as having more than one staffer involved in every financial transaction. Since most embezzlers fly solo, this alone can significantly reduce your risk.

Additionally, business owners—or at least someone outside of the normal bookkeeper—should regularly review the company’s bank statements, credit card invoices, canceled checks, and other financial records. At the very least, you should do a monthly profit-and-loss review, looking for variances and checking into even small discrepancies. That’s something we often participate in with business owners who are part of our Creative Business Lawyer Strategy Plans®. Email us for more details.

Obviously, pre-employment background checks are also a good idea, especially for anyone involved with the business’ finances. But don’t let a clear background lull you into thinking they aren’t capable of stealing.

One of the biggest red flags to watch for are employees who seem to live well above their means, with lifestyles and purchases that aren’t commensurate with their salaries. Many times, the culprits can’t help but flaunt their riches, so keep an eye on employees who enjoy showing off wealth that doesn’t match their paychecks.


And though it won’t prevent embezzlement, company owners should always purchase adequate business insurance to mitigate the consequences of employee theft. Even if you catch the culprit red-handed, it’s rare for more than a fraction of the stolen funds to be recovered, and restitution—even when paid—will do your business little good if the missing funds cause your business to go bankrupt.

If you suspect an employee of stealing


If you suspect embezzlement, you should immediately document everything you know about the situation, and discreetly review financial, payroll, and personnel records for supporting evidence. Only share the investigation with one or two trusted individuals, and always on a strict need-to-know basis. Make a list of potential witnesses, but don’t discuss anything outside of your small investigative team until the final stages. 

However, be very careful not to jump to conclusions and accuse someone without proof—this could irreparably tarnish the employee’s reputation, cause serious staff conflict, and even expose the company to liability.

Disclaimer:  This article is for informational purposes only and not intended as legal advice or to create an attorney-client relationship. Every situation is unique and consultation with an attorney is required before any specific advice can be given.

5 Common Estate Planning Mistakes and How to Avoid Them

Since estate planning involves thinking about death, many people put it off until their senior years or simply ignore it all together until it becomes too late. This kind of unwillingness to face reality can create major hardship, expense, and mess for the loved ones and assets you leave behind.

While not having any estate plan is the biggest blunder you can make, even those who do create a plan can run into trouble if they don’t understand exactly how estate plans function.

Here are some of the most common mistakes people make with estate planning:

Not creating a will

While wills aren’t the ultimate estate planning tool, they’re one of the bare minimum requirements. A will lets you designate who’ll receive your property upon your death, and it also allows you to name specific guardians for your minor children. Without a will, your property will be distributed based on your state’s intestacy laws (which are probably not in alignment with your wishes), and a judge will choose a guardian for your children under the age of 18. Oh, and as soon as your kids turn 18 (or if they are 18 or older at the time of your death), your kids will receive their inheritance outright with no guidance, direction, or intention.

Not updating beneficiary designations

Oftentimes, people forget to change their beneficiary designations to match their estate planning desires. Check with your life insurance company and retirement-account holders to find out who would receive those assets in the event of your death.


If you have a trust, you’ll likely want the trust to the beneficiary. This does not happen automatically upon creating a trust. You actually have to make the change. See the section below for more on funding your trust.

And you never want to name a minor as a beneficiary of your life insurance or retirement accounts, even as the secondary beneficiary. If they were to inherit these assets, the assets will be frozen or controlled by the court until he or she turns 18.

Not funding your trust

Many people assume that simply listing assets in a trust is enough to ensure they’ll be distributed properly. But this isn’t true. Some assets—real estate, bank accounts, securities, brokerage accounts—must be “funded” to the trust in order for them to be actually transferred without having to go through court-supervised probate. Funding involves changing the name on the title of the property or account to list the trust as the owner.

Unfortunately, many lawyers have been trained to create a trust, but not make sure assets are actually transferred into the trust. Crazy, right?!? But we see it all the time. And of course, when you acquire new assets after your trust is created, you must make sure those assets are also titled into your trust. However, most lawyers are not trained to make sure this happens either.


Not reviewing documents

Estate plans are not a “one-and-done” deal. As time passes, your life circumstances change, the laws change, and your assets change. Given this, you must update your plan to reflect these changes—that is, if you want it to actually work for your loved ones, keeping them out of court and out of conflict.

We recommend reviewing your plan annually to make sure its terms are up to date. And be sure to immediately update your estate plan following major life events like divorce, births, deaths, and inheritances. We’ve got built-in processes to make sure this happens—ask us about them.

Not leaving an inventory of assets
Even if you’ve properly “funded” your assets into your trust, your estate plan won’t be worth much if heirs can’t find your assets. Indeed, there’s more than $58 billion dollars worth of lost assets in the various State unclaimed property coffers right now. Can you believe that? And it happens because someone dies or becomes incapacitated but their assets cannot be found.

That’s why we create a detailed inventory of assets, indicating exactly where to find each asset, such as your cemetery plot deed, bank and credit statements, mortgages, securities documents, and safe deposit box/keys. And don’t forget digital assets like social media accounts and cryptocurrency, along with their passwords and security keys. We cover all of this in our plans.

Beyond these common errors, there are many additional pitfalls that can impact your estate planning. At Forrest Law Center, we’ll guide you through the process, helping you to not only avoid mistakes, but also implement strategies to ensure your legacy will continue to grow long after you’re gone.

How to Choose the Right Ownership Structure for Your Business

Many Americans are starting their own businesses these days, and may be confused about exactly what the best ownership structure is for their business.  The answer is, it depends on the type of business, how many owners are involved, and the financial situation for each owner.

Here are some considerations when deciding which structure to choose for your business:

Risk

If your business involves some degree of risk to the products or services you provide, then a business structure that protects owners from personal liability for business debts and claims – a corporation or a limited liability company (LLC) — may be a good choice.

Taxes 

What the IRS calls “pass-through” entities – LLCs, sole proprietorships and partnerships – require business owners to report business profits and losses on their personal tax returns and pay taxes on net profits.  Corporation owners do not report corporate profits (their share) on their personal returns; the corporation itself pays taxes, at corporate tax rates, on retained earnings.  Although having a corporation may add more tax reporting paperwork, it can also benefit some businesses since corporate tax rates are usually lower than the individual rate.

Complexity

LLCs and corporations are more complex entities than sole proprietorships or partnerships, generally requiring more time and money to create and maintain.  LLCs and corporations also require meticulous record keeping and the performance of other duties not required by sole proprietorships or partnerships.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee. 

Easy Mistakes to Avoid When Passing Assets to Your Child

Creating a trust is one of the most common methods to pass assets from parent to child. By leaving money and other assets in trust, you can ensure that the assets are used in the way that you intend. Don’t let your efforts in completing this important, yet often dreaded task, be ruined by making one of these common mistakes.

Leaving Assets Outright to Kids

One of the most avoidable mistakes is to do nothing – that is, not putting a plan in place. This not only means that your assets might pass through court-supervised probate before getting to your kids, but also means that they might get full access to the money and assets before they are mature enough to use it wisely. By default, any person over the age of 18 will have full access to any inheritance. If the child is under the age of 18, the assets might be frozen until they turn 18, or the court will have to appoint a person to oversee the use of the property. In Virginia, even with a court-appointed guardian, the court often requires prior approval before any disbursement is made.

Not Carefully Choosing a Trustee

Even parents who do the right thing and set up a trust to hold their child’s inheritance can make the mistake of choosing the wrong person to manage the assets. By consulting with a trained estate planning attorney, parents can identify one or more people who have the characteristics of a good trustee – someone who is honest, organized, and knowledgeable.

Not Properly Protecting Assets Left in Trust

Some parents go through the process of creating a trust so that assets can be managed for their children, but don’t think through the level of maturity a child may have even after turning 18. At a minimum, parents should consider extending the lifetime of the trust until the child reaches a certain age. Parents should also think about whether it is a good idea to keep the assets in trust for the lifetime of the child, so that the inheritance isn’t subject to access by creditors, lawsuits, or future divorces.

Neglecting to Fund the Trust or Fix Beneficiary Designations

Lastly, if you make a trust, make sure your insurance policies and financial accounts are directed to your trust and not directly to your children. Failing to name the proper beneficiary is a sure-fire way to undermine all the estate planning you’ve done and leave the assets subject to court oversight or outright freezing until the child turns 18.

While a trust is one of the most flexible estate planning tools available, creating a trust may not be appropriate in all situations. The documents that make up your estate plan should serve your needs and goals, not the other way around. Working with an attorney invested in the best outcome for you is one of the best ways to ensure you have the proper estate plan in place.

This article is a service of Jeremy Forrest and Forrest Law Center PLLC. We don’t just draft documents; we ensure that clients make informed and empowered decisions about life and death. To learn more about how Forrest Law Center can help you and your family, feel free to schedule a no-charge 15-minute phone call with Jeremy Forrest. If you are ready for a complete Estate Planning Session, you can learn more here.

From board games to business, Jeremy Forrest enjoys figuring things out on behalf of others

Pass the game instructions to Jeremy Forrest.

As far back as middle school, he could decipher rules that would tax anyone else’s patience.

Maybe that’s why law appeals to the Newport News native so much. Today the owner of Forrest Law Center in Williamsburg works with a loyal client base to tackle the complexities behind business and estate planning.

As much as Jeremy enjoys that process, the relationships he’s built over the years remain the most rewarding part.

“I really do enjoy the work of being a lawyer, being helpful to people and really navigating complicated rules and helping clients develop strategies that work best for them,” he says. “Going back to that nerdy kid who liked to win at games, I like to help my clients find what works best so they can get the outcomes they’re trying to accomplish.”

Jeremy graduated from Hampden-Sydney College with a Bachelor of Arts in 2008. The student body was about half the size of his high school, Warwick High, which pulled in close to 2,000 students. But the smaller campus allowed for interaction with professors outside of the classroom, a learning opportunity that Forrest valued as much as the academics.

He initially planned to be a teacher like his parents, but embraced the legal profession after two years working for an attorney. He applied to one law school, The Marshall-Wythe School of Law at the College of William and Mary, and got in.

“It was a great place to be, a warm place to be a student,”  he says.

Likewise, clients can feel at home at Forrest Law Center. Jeremy opened his own firm in July 2018. He is one of two employees with Client Services Coordinator Erin Smith. 

“I always communicate with my clients that just because a matter is over, it doesn’t mean they’re no longer my client,” he says. “It’s always important that if they have questions, they know the lines of communication are open. And unlike a lot of attorneys, there’s not going to be a charge for that phone call.”

While Jeremy devotes much of his energy to the firm, he’s loved road trips since his college days and might be the only person on the planet to admit, “I enjoy driving in Manhattan.” A long car ride allows him to escape into his favorite podcasts, the strange-but-true stories featured on Omnibus and Radiolab.

Jeremy and his wife, Shannon, enjoy outdoor activities like camping and going to Busch Gardens, spending time with their extended family and their Tuxedo cat, Thaddeus.