Family Member Stealing from Business

The best way to reduce the chance of embezzlement from a family business is to provide education to all employees, implement strict rules about how the company’s assets and funds can be used, and put in place controls that will spot wrongdoing immediately. By acknowledging the unfortunate reality that embezzlement can happen, and by planning how to prevent it, a family business can keep itself strong and successful.

Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Family Member Stealing from Business, Example

Bob is the owner of Bob’s Vineyard & Wine, a family business that has been running successfully for fifty years. Bob has employed many members of his family to work in the shop, including his son, Edward. Recently, Bob has noticed that money has gone missing from the register, and every month a large amount of the business’ funds disappears from the company’s bank account. Bob also observes that his son Edward has recently purchased a sports car and designer clothes. With great sadness, Bob realizes that his own family member may be stealing from the business. He wonders how best to handle such a delicate situation without ruining his relationship with his son.

While people may not be surprised to hear about embezzlement in a public company, perhaps in their favorite newspaper, it is always shocking to hear about embezzlement taking place in a family business. People may wonder, “how could someone steal from their own family?” It may seem inconceivable that someone would purposefully harm their own relatives in the pursuit of personal wealth and greed.

While the thought of embezzling from a family member is horrifying and unsavory to think about, it is more common than people would like to think. The kind of thievery that results in jail time is fairly rare, but more minor instances of it happen on a regular basis.

How does this kind of embezzlement happen to a family business? There are many reasons why someone may steal from his or her own family, including the following situations:

  • Constant financial difficulty
  • A sense of family entitlement
  • Lack of internal company controls
  • The perception of being underpaid and overworked

Though it may be hard to believe, it often happens that the embezzler does not comprehend that was they are doing is wrong or unlawful.

The following situation is an example showing how embezzlement can start small and quickly become a big problem:

Freddie, the son of a business owner, decides to fill up his car with gas every Thursday using his family’s business account to pay for it. While he knows that the gas will mostly be used for personal reasons, such as driving to the bowling alley or going to the beach, he justifies his actions by claiming that he fills the tank on his own sometimes and uses his “own gas” on Monday and Tuesday. He also takes vacation days whenever he wishes, not bothering to mark them as paid time off. Whenever he is in need of pocket money, Freddie dips into the business cash register for fifty dollars, assuming that no one will notice or mind. He figures that because his father does not pay him as much as a competitor would, it all evens out in the end. Freddie also knows that other family members, such as his cousin Janine, do the same kinds of things. Thus, these actions become part of the company culture, and therefore not embezzlement.

This abuse of company time, assets, and funds grows more serious and rampant. When Freddie’s father hires a non-family member to join the business as an employee, the problems quickly become apparent to the new hire. He does not know who to tell about the thievery that he observes on a daily basis.

Though it may start out small and seemingly innocent, embezzlement in a family business can develop into a serious issue that harms the business, damages non-family employee morale, and ruins trust among the family members.

How to deal with embezzlement in a family business?

It may seem challenging to confront stealing within a family business. One must take action in a careful, thoughtful way. It may be a good idea to start out with a meeting between the company’s main leaders without the presence of the suspect family member. Together, these leaders should address the following questions:

  • Are there clear, obvious facts that can be verified?
  • Who will be present at the meeting to establish the facts?
  • Will the courts become involved?
  • If the suspect family member stays in the business, will their role change?
  • How will this news be communicated to the rest of the family and other employees?
  • How did the company contribute to this problem?
  • What steps can be taken to ensure the company does not contribute to this kind of problem in the future?
  • Has this family member had financial problems?
  • How can the company be protected from future abuse of company assets or funds?
  • How will the whistleblower be protected?
  • Is there an internal whistleblower program, and are employees trained?
  • Does the family openly talk about how to financially protect and care for company funds and assets?
  • Is there a non-compete clause in the employment contracts in the event the family member must be forced from the business?
  • Is a background check run on applicants?
  • How should the family member be dealt with if forced out? Will security be needed, or bank account access protection?
  • Will a corporate attorney need to be involved?

Once a business owner knows the answers to these questions, he or she should schedule a second meeting, this time with the suspect family member. During the meeting, proceedings should be kept at the level of discovery. This means that one should present the known facts and ask the family member their version of what happened. It is important to listen to their perspective because, again, some family members genuinely do not realize that they are embezzling from the company. If this instance is a first offense, and if the stealing is not serious, then education may be the solution. However, if one believes the family member knew precisely what they were doing and may do it again, or if the embezzlement was serious, then termination may be the correct and only option.

During the meeting, one should keep in mind what they would do if the family member was a regular employee. Would they be able to trust the individual again? This objectivity will help clarify the best course of action.

Please tell us your story:

2 + 1 = ?

See all blogs: Business | Corporate | Employment

What is profit formula and how to calculate profit formula?

A business profit is revenue minus expenses. The profit formula in accounting calculates the net gains or losses incurred by the business for a period by subtracting the total expenses from the total income: Total Income – Total Expenses - Profit

What is invoice reconciliation?

Invoice reconciliation is the process of matching bank statements to incoming and outgoing invoices. The purpose of invoice reconciliation is to confirm that the data entry is correctly matched with every invoice.

What Makes a Verbal Contract Valid

A verbal contract is valid when contractual elements are satisfied, such as evidence of an offer, acceptance of the offer, and consideration which is an exchange of value between the parties.

Marketing Transport Company

The easiest way of growing your list of clients is to schedule a meeting with businesses that do a lot of shipping and introduce your transportation company. Then, engage an internet presence to market your transportation business.

What Can You Do with a Toxic Business Partner?

A bad partnership could lead to profit loss and toxic company culture. The first way of dealing with a toxic business partner is to schedule a meeting to discuss your concerns calmly.

Disruptive Business Model

Disruptive business models are disruptive innovations that bring new business ideas or technology to existing markets. A disruptive business does not fit the profile of a standard business model. Amazon is considered as one of the world's most disruptive companies.

How to Get a Business Loan with Bad Credit

For small business owners with bad credit, the easiest place to get a business loan is with the SBA. Although not easy, entrepreneurs with bad credit can get a small business loan.

How to Get a Small Business Grant

You can get a small business grant from the Small Business Administration. Also, check your local government for small business stimulus grants.

Pros and Cons of Etsy

Etsy Pro: Your products are given a large audience, and you easily sell your merchandise. Etsy Cons: You can only sell handmade or vintage merchandise, and there are many competitors.

What is a Breach of Contract in California?

A breach of contract in California arose when a party to a contract failed to achieve a legal duty the contract created. When a party to a contract fails to fulfill the terms of a binding contract, they are liable for damages for breaching the contract.

Business Equipment Leasing Pros and Cons

One advantage of equipment leasing is that you don’t need to come up with all the cash to buy the equipment. One disadvantage of equipment leasing is higher overall costs than outright purchasing the equipment.


The main difference between an LLC and a DBA is that an LLC is a business entity, and a DBA is a registered fictitious business name. Sole proprietors, general partnerships, and LLC can register for a DBA.

What is an LLC and how does it work

An LLC is a business entity that protects the owners with limited liability protection. An LLC also offers pass-through taxation, which means the company’s profits and losses pass through to the owner’s personal tax level.

What Is a Disregarded Entity?

A “disregarded entity” refers to an entity with one owner and not organized as an entity such as a corporation, LLC, or partnership. For federal tax purposes, the disregarded entity and the owner, who is a natural person, are not treated separate.

California Breach of Fiduciary Duty

A fiduciary is a professional person who owes a legal and ethical responsibility to another person. Examples of people with fiduciary duties are lawyers, financial advisors, corporate officers, corporate directors, etc. A breach of fiduciary duty occurs when the professional person fails to do what was legally and ethically required of them.

List of 12 Biggest Business Startup Costs

It is a good idea for every entrepreneur to consider the costs associated with starting their business. Financing is stressful, but estimating startup costs goes a long way to ensuring a business succeeds.

Is it legal to sell homemade food in California?

California is one of the only states to allow individuals to sell homemade meals, including meals that contain meat. So long as you have California required permits and licenses, it is legal to sell homemade food in California.

10 Tips on How To Start A Food Truck Business

Running a food truck business is an exciting and trendy opportunity for any entrepreneur with a passion for food. If a business owner chooses the right financing options and follows the above tips, then he or she has every chance of success.

What is a demand letter?

A demand letter is a letter that is commonly written by a lawyer on behalf of a client setting forth facts supporting a demand for money. A demand letter is usually the first step in resolving a dispute between two opposing parties.

What is working capital cycles?

In business, a Working Capital Cycle is the period that a company waits to receive payment to create available cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster.

What Happens When Business Partners Disagree?

Before going nuclear, when business partners disagree, the partners should talk about how to move forward. If talking fails, the partners may discuss a buy-out. However, if there is wrongdoing by one business partner, a lawsuit may be an option.

Bank Statement Business Loans

A business bank statement loan lender relies only on the company’s bank statements to qualify the borrower.

How to Prove a Verbal Contract

To prove a verbal contract is by getting witnesses to testify that the agreement was made. Also, proving a contract existed can be supported by documents such as receipts, invoices, delivery, statements, text messages, and emails.

What are business performance metrics, and why it is important?

Business performance metrics is a quantifiable measured value that shows the company’s progress and growth. Business metrics track the business progress and performance. A quantifiable measurement may include customers, revenue, and profits.

Is Sabotaging a Business Illegal?

Yes, sabotaging a business is illegal regardless of who is saboteur, e.g., business partner, competitor, family member, or customer.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)