Misappropriation of funds by an employee: what to do as an employer?

What is misappropriation of funds (détournement de fonds) by an employee?

Legal and practical definition for the company

Misappropriation of funds by an employee occurs when a member of staff fraudulently appropriates sums of money or assets belonging to the company.

In criminal law, it is generally classified as breach of trust (abus de confiance) (Article 314-1 of the French Criminal Code), that is to say the unlawful use of funds or assets handed over for a specific purpose.

Concrete examples of misappropriation in a company

In practice, misappropriation takes various forms; among the most frequent situations are:

• Fraudulent bank transfers: transfer of the company’s funds to a personal account or to that of an accomplice.
• Abusive use of payment methods: company bank card, cheques, abusive expense claims.
• Accounting manipulation: false invoices, a double set of cash records or fictitious entries.
• Appropriation of physical assets: goods, IT equipment or company vehicles.

These acts can involve a variety of profiles: accountants, finance managers, senior executives or any employee with access to financial flows or stock.

How can you detect misappropriation of funds by an employee?

Warning signs that are often discreet

Obviously, the employee will try to conceal their actions. Nevertheless, certain signs should alert you and lead you to carry out checks:

• Accounting inconsistencies: unexplained discrepancies between the figures declared and the bank statements, duplicates or suspicious entries.
• Resistance to controls: refusal to provide supporting documents, recurring delays in financial reports or in closing the accounts.
• Unusual access or initiatives: requests for exceptional authorisations or for changes to validation procedures.
• Changes in behaviour: nervousness, isolation, etc.

What are the risks of misappropriation of funds for the company and the employee?

Consequences for the company: a financial and reputational risk

Misappropriation of funds can lead to:

• A financial loss, not only because of the funds misappropriated but also because of the costs incurred in detecting the fraud and responding to it
• An impact on reputation: risk of distrust among partners or loss of confidence among investors or customers if the matter becomes public.
• Internal tension: demotivation of teams, a feeling of insecurity or betrayal.

Consequences for the employee responsible: employment law sanctions

An employee found guilty of misappropriation of funds faces:

• disciplinary measures with immediate effect (precautionary suspension (mise à pied conservatoire) as soon as the facts are discovered, followed by dismissal, in compliance, of course, with employment law)
• criminal penalties depending on the offence that is retained:
  • breach of trust (Article 314-1 of the French Criminal Code): up to 3 years’ imprisonment and a €375,000 fine, or
  • fraud (escroquerie) where fraudulent manoeuvres have been used: up to 5 years’ imprisonment and a €375,000 fine,
  • aggravated penalties may apply if the fraud is committed by an organised gang (bande organisée) or involves large sums.
• repayment of the sums misappropriated and compensation for the losses suffered by the company

What should you do if you suspect misappropriation of funds?

Here is what I recommend that you do:

• Preserve the evidence and draw up a chronology of the facts: save electronic exchanges, bank statements, video recordings and accounting records, and limit internal exchanges to avoid any destruction of documents
• Carry out an internal or external audit to confirm the reality of the misappropriation of funds
• Suspend the suspected employee as a precautionary measure
• File a criminal complaint (déposer plainte) so that a criminal investigation is carried out (see the article “filing a complaint for a company”). A criminal law lawyer can help you file the complaint, classify the facts legally and determine the best strategy to adopt!

How can you recover the sums misappropriated?

If you have filed a complaint, I recommend waiting for the outcome of the criminal proceedings and the hearing before the Court before asking for the employee to be ordered to repay the misappropriated sums to the company.

Here, in brief, are the stages of the criminal procedure:

• Filing of the complaint
• Criminal investigation, or even a judicial investigation (instruction) for more complex cases
• Trial hearing before the criminal court (tribunal correctionnel): it is at this stage that the company joins the proceedings as a civil party (partie civile) and asks the Court to order the employee to repay the misappropriated sums and to compensate it for its other losses (which may include additional workload caused by dealing with the fraud internally, non-material harm (préjudice moral) or even reputational harm, and lawyer’s fees).

Unfortunately, between the filing of the complaint and the trial hearing, several months or even several years often pass, depending on the complexity of the facts.

How can you prevent the risk of misappropriation of funds by employees?

The best strategy against misappropriation of funds remains anticipation, by strengthening internal controls, raising awareness among teams and securing recruitment and access.

Strengthening internal controls and traceability

This can involve:

• Separation of sensitive functions: avoid one person having control of the entire chain (payment approval, accounting, bank reconciliations).
• Double validation of transactions: require two signatures for transfers, cheque deposits or significant expenditure.
• Regular audit of the accounts: schedule unannounced checks to detect any anomaly quickly.
• Use of secure software: favour tools that keep a tamper-proof history of transactions (logs, timestamping) with strict access management.

Raising awareness and training teams

The values instilled in your team are important. You can in particular put in place:

• An ethics charter or code of conduct: remind staff of the rules of probity and of the sanctions in the event of fraud.
• Regular training for employees: teach managers and finance teams to spot warning signs (suspicious behaviour, accounting anomalies).
• Confidential reporting channels: set up a whistleblowing system (internal alert) so that employees can report a fraud safely.

Conclusion:

Faced with misappropriation of funds by an employee, the company must act quickly to protect its finances and its reputation. The support of a criminal law lawyer specialising in business law allows managers and HR officers to handle the situation effectively, by securing the evidence, launching the appropriate legal steps and protecting the company’s interests as far as possible.