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New Orleans law firm dissolves in wake of embezzlement scheme

By March 17, 2004law

From today’s local newspaper comes the story that the local legal community has been talking about for several days:

“Stunned by allegations that its chief financial officer stole at least $2.5 million out of its operating fund, a New Orleans law firm whose masthead listed a former city attorney and former state bar association president has shut its doors, fired the administrator and had him arrested for theft.”

The firm’s financial officer had stopped using the independent company that processed the firm’s employee payroll. Then, over a period of four years, he diverted the payroll taxes to his own account. The firm’s partners didn’t notice the problem, but the IRS did.

The big lesson from these sorts of events is that law firm managers have to resist the temptation to blindly trust people just because they’ve been around for a long time. I know it sounds cruel, but running a business is primarily about making sound management decisions. In this case, the inclination to trust one employee (who had been with the firm for 20 years) created a situation that harmed not just the firm’s partners, but all of the other employees. I wonder how many other law firms around the country are vulnerable to this sort of thing? Probably more than we think.

P.S. If you want a better practice, start using the 80/20 Principle.
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