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Employee Dishonesty RisKey
Overview
 
Dishonesty losses occur rarely. Therefore, managers may find themselves ill prepared to handle them. This RisKey is provided to all state managers as a guide to handle acts of dishonesty, and to help you correct areas of risk before the dishonesty occurs.
 

Employee Dishonesty Losses
 
"Employee dishonesty losses" means losses of state money or property directly caused by an employee´s fraudulent or dishonest act. For example, an employee might:
  • Steal from the till.
  • Send benefit checks to himself, friends, or relatives who are not entitled to them.
  • Falsify records to misrepresent that he or a friend or relative paid a state bill or qualify for a state benefit.
  • Take state equipment, furnishings, or supplies for personal use.
There can also be acts of dishonesty or crime which cause no loss of state property or money. If no loss is involved, the Risk Management and the Secretary of State Audits Division is usually not involved. Instead, agencies should contact the Department of Justice and their Human Resources Section before disciplining acts of dishonesty which involve no loss to the state.  

Primary Roles
 
The key players and their primary roles in a suspected dishonesty loss are these:
  • Agency Managers: Prevent losses, discover losses, report suspected losses. Take personnel actions. Take custody of, and protect, the evidence.
  • Audits Division: Verify and document the loss. Recommend practices to prevent losses.
  • Risk Management Division: Pay the agency, recover loss from the wrongdoer, give risk control advice, purchase and manage the state´s blanket bond.
  • Justice Department: Legal advice, civil actions, investigate and coordinate for criminal prosecution.

Claim Reporting
 
You must report every loss or a situation that may result in loss within 90 days after you discover it. Make the report to Risk Management Division and the Secretary of State´s Audits Division. Late reporting may void coverage. Reporting a suspected loss promptly is essential to preserving your insurance coverage. Claim reporting roles are:
  • Agency Managers: Notify Audits, Justice and Risk right away. Talk to Justice before taking any action, other than action immediately necessary for the protection of records and assets.
  • Audits Division: Notify Risk right away. Notify Justice if criminal activity appears to have occurred.
  • Risk Management: Notify Audits right away. Notify excess surety if appropriate.
  • Justice: Notify Audits right away.

Caution
 
Discovery and reporting are the key stages of a dishonesty claim. A wrong action or statement when you discover a suspected loss could mean:
  • Impairing the state´s ability to prosecute a civil or criminal legal action.
  • You and your agency facing a lawsuit from an employee for defamation.
  • You facing personal criminal charges for extortion. That is, for threatening to report the employee to the police to coerce him or her to confess or repay the money.
  • You being charged as an accessory to the crime. This could come from agreeing to cover up the theft or to forgive or forget it.
  • You being personally responsible for the loss. This could happen if you take willful action to prevent the state from finding the loss or recovering its funds.
The way to avoid all these risks is to call legal counsel at once. Do this before talking to the employee or conducting an investigation. Your cost in making that call is a few dollars in legal fees. Your risks in not doing so can be severe.  

Investigation
 
Suspected losses must be investigated. The purpose is to verify and document or disprove them. Financial investigations are largely in the control of the Secretary of State Audits Division. Investigation roles are:
  • Agency Managers: Perform investigation only under the direction of the Audits Division or Justice. Supply any information needed by Audits, Risk, and Justice. Oregon State Police and Department of Corrections have internal affairs units who perform certain criminal or personnel investigations directly. However, they too must comply with reporting requirements.
  • Audits Division: Perform or direct investigations as needed.
  • Risk Management: Gather sufficient information to establish proof of claim. Investigate minor losses when Audits Division chooses not to investigate.
  • Justice: Advise and assist Audits and Risk as requested. Take the lead on investigations of losses with a potential criminal component.

Filing Proof
 
We purchase a blanket fidelity (or dishonesty) bond for large losses from a surety. The surety (the state’s commercial carrier for large losses) wants proof adequate to sustain a civil action for recovery of the loss. The surety requires proof of loss filings within 120 days. Risk may have to file incomplete proof if the investigation is not done. An incomplete proof includes a summary of evidence available, an estimate of loss, and a plan for continued investigation. Amendments may then be filed later, if needed. Filing the proof of loss on time preserves the state´s coverage. Proof of loss roles are:
  • Agency Managers: Supply any information needed by Audits, Risk and Justice. (The loss is usually paid after proof of loss is filed.)
  • Audits Division: Supply Risk with a final report or a list of evidence and narrative (as available within the time limit).
  • Risk Management: Watch the calendar. Prepare proof of loss forms and reports for agency´s signature and submit to surety on time.
  • Justice: Advise and assist Audits and Risk as requested.

Criminal Prosecution
 
To sustain a criminal prosecution, enough evidence is needed for a true bill from a grand jury. The decision on evidence is made by the appropriate DA. The state prosecutes state employees for criminal acts in the same way and by the same standards by which it prosecutes anyone else. Criminal prosecution roles are:
  • Agency Managers: Cooperate with Department of Justice and DA. Do nothing that could impair DA´s criminal prosecution.
  • Audits Division: Supply Risk and Justice with any evidence that is needed and available.
  • Risk Management: Follow up with DA for a restitution order.
  • Justice: Coordinate agency´s role as complainant and decide what, when, and how to submit to DA.

Civil Action
 
Usually, the District Attorney (DA) is asked by Risk to seek a restitution order as part of the criminal prosecution. Sometimes the DA finds too little evidence to support a criminal prosecution. The evidence may still support a civil action for damages. Civil action roles are:
  • Agency Managers: Provide Risk and Justice the documents, testimony and information they need.
  • Audits Division: Supply Risk and Justice with any evidence that is needed and available.
  • Risk Management: Under its subrogation rights, pursue collection of lost funds by civil action or by a restitution order. As part of our recovery effort, we may file liens on any property or refer collection efforts to Department of Revenue.
  • Justice: File action for recovery on Risk´s behalf as requested.

Preventing Losses
 
Preventing a loss may be the most cost effective means of safeguarding your agency and employees. The current state employee dishonesty self-insurance policy has a $5,000 deductible if no loss control program is in place when a loss occurs. Loss control measures include separating duties of receiving, approving and processing payments, locking-up cash, and keeping and verifying records.
 
If it is time to review your property and money controls or establish a loss control plan, call us. We’ll help you assess your risk and get you in touch with the experts in the State Treasury, the State Controllers Office or the Secretary of State Audits Division.
 

Key Resources
 
Employee Dishonesty Policy Manual 125-7-203, updated 11/1/96
ORS 291.011 and 297.120
ORS Chapter 278
 
For more information, call or write:
Department of Administrative Services
Risk Management Division
1225 Ferry Street SE, U150
Salem, Oregon 97301-4287
Phone: (503) 373-RISK (7475)
FAX: (503) 373-7337
State e-mail: Risk Management
Internet: risk.management@state.or.us
 
History: Created 12/91