South Carolina Lawyer
SC Lawyer, September 2010, #3.
Avoiding Employee Embezzlement
South Carolina LawyerSeptember 2010Avoiding Employee EmbezzlementBy J. Steedley Bogan and Brianna Spann Articles cautioning lawyers to be wary of the dangers of employee embezzlement abound in journals, blogs and news reports. An online search will result in headlines such as "Paralegal Sentenced for Embezzlement" and "Manager Stole 1.3 Million from Law Firm." Each offers anecdotal evidence of a trusted employee who, over a short or long period, made off with client funds without anyone being aware of his actions.
Too often, lawyers ignore the danger posed by employee theft and do not implement safeguards. They apparently never realize that much more is at stake than simple financial loss (though depending on the size of the theft, this in and of itself could leave a firm in financial ruin). The mentality of "it could never happen to me" runs parallel with the desire to trust in one's employees' intrinsic goodness. Unfortunately, no matter how well intentioned, these attitudes can land a lawyer in big trouble. The responsibility for employee theft ultimately falls to the supervising lawyer. This can result in ethical charges of improperly supervising non-lawyers and failure to keep safe clients' funds and properties, either of which may lead to disciplinary action against the lawyer.
South Carolina has seen its share of lawyers who have been victims of theft by office personnel. First, look at a case where the lawyer discovered the theft before too much damage had been done. See In re Keegan, where a paralegal misappropriated around $10,000 for her personal use. 373 S.C. 176, 644 S.E.2d 722 (S.C. 2007). The paralegal cancelled account reconciliation services and subsequently, the account was not reconciled for six months, obscuring the thefts. Upon finally reconciling the account, the supervising lawyer discovered the multiple transactions. Id. at 177, 644 S.E.2d 723. The paralegal ultimately confessed and reimbursed the lawyer; however, he was still disciplined with a public reprimand. Had he been appropriately supervising the paralegal, she would not have been able to cancel the accountant services, and, perhaps, he would have been able to catch the thefts.
Unfortunately, employee theft can lead to much more serious consequences. For an example of a matter resulting in more serious disciplinary measures, see In re Marshall, where the supervising lawyer was suspended for six months because of her failure to properly supervise her office manager. 331 S.C. 514, 498 S.E.2d 869 (S.C. 1998). After hiring a personal acquaintance to this position,the lawyer did not monitor her office manager who subsequently undertook a number of embezzlement schemes involving clients and loan companies. While the disciplinary panel found that the lawyer had no knowledge or involvement in these situations, they believed that had she properly supervised her employee, the lawyer could have mitigated the damages. Id. at 527, 498 S.E.2d 876. As a result of her failure to supervise a non-lawyer and failure to keep safe client funds, the panel suspended her for six months.
Consider also two Midlands area cases involving massive non-lawyer theft. In re McMillian involved a lawyer who had only been out of law school a short period of time. He lost his license by allowing a non-lawyer to have charge of his trust account. 596 S.E.2d 494 (S.C. 2004). The lawyer did real estate closings, and a non-lawyer title agency did all the paperwork involving the closing, including arranging for a title abstract. Id. at 495. When reading the McMillian opinion, one can see that McMillian gave non-lawyers, who were not even employees of his firm, almost total control over the trust account and even set...