Any contractor whose employees gain access to customers’ homes and offices has a special obligation to make sure they are solid citizens. One unsavory character on the payroll can destroy your company.



Nobody saw it coming. The guy apparently didn’t have a record and had passed a criminal background check before being hired as an installer by a cable company in my hometown of Chicago. I say “apparently” because there is no national database on criminal records, and bad guys can sneak through the hodgepodge of documentation.

This creep was arrested and charged last December with the sexual assault and murder of a young woman who let him into her home to repair her Internet service. He was a suspect in the similar murder of another woman two months before. The cops didn’t tell his employer he was a suspect because there wasn’t enough evidence to arrest him. (He subsequently got charged with the first killing as well.)

Our local media bashed the cops over this, but the real culprits are the civil libertarians who have created a climate in which everyone has to tiptoe around common sense in order to avoid lawsuits. One newspaper account said that the police did tell the cable company that their employee was a possible witness in a homicide investigation and had been questioned. That sounds to me like the cops were winking and nodding, but nobody at the cable company picked up on it. Or maybe they did, but they, too, were afraid of casting aspersions without rock-solid proof. Too bad about the young women whose lives were so cruelly snuffed out. At least we can take comfort knowing the cable creep’s civil liberties were not violated.

Stuff like this doesn’t happen every day, but there’s always a chance of it happening when people open their door to strangers going about legitimate business. And while trade workers don’t commit lurid murders every day, every day does bring a slew of lesser crimes attributable to the worst among them. Residential service and remodeling contractors dread getting complaints about things missing from the home after a visit from one of their workers, and many of them have had the experience at one time or another.

Clever thieves can last a long time on a payroll because they know how to disguise their crimes. Missing jewelry might not get noticed for days or even weeks after a worker’s visit. Sometimes the theft doesn’t occur right away, but with a subsequent break-in.

Don’t get me wrong. I’m not even close to saying that a large number of trade workers are crooks. The vast majority are honest, hardworking folks. It’s just that any contractor whose employees gain access to customers’ homes and offices has a special obligation to make sure they are solid citizens. One unsavory character on the payroll can destroy your company.

As noted, criminal background checks are no guarantee you’ll discover the deepest, darkest secrets of job applicants. But it’s virtually guaranteed that you won’t discover them - until it’s too late - without doing background checks.

Considering the stakes, it’s amazing how many contractors don’t bother to check criminal and driving records of the people who drive their vehicles, operate expensive equipment and work on customer premises. Shame on them, yet it’s not always their fault. Laws in certain jurisdictions actually limit the transmission of such information and prohibit holding criminal convictions against job applicants. The civil libertarians say it’s unfair to discriminate against people who have done their time and may, after all, be rehabilitated. Justice would be well served if only there were a way to identify all the proponents of such laws, and limit work by convicted criminals to their premises.

White-Collar Crooks

Thievery is not limited to the blue-collar world. A little-noted criminal epidemic consists of small business owners robbed through embezzlement by people hired to keep their books. Small trade associations also are vulnerable.

I’ve written about this before, but the subject is worth revisiting because it occurs so often. Contractors are inviting targets for embezzlers because so many of them have an aversion to bookwork. Many prefer to spend most of their time supervising jobs in the field or working with the tools, and are only too happy to hire someone who actually likes the boring duties of bookkeeping. Small companies are more vulnerable than large corporations, where bookkeeping and accounting departments have cross-checks, audits and division of responsibilities that make it harder for individuals to get away with any hanky-panky.

In small companies, a single individual often has control over a company’s payables and receivables. Frequently, this person also has check-writing authority. This is bad policy.

A survey of certified public accountants by the Institute of Internal Auditors (Auditors Inc.) found that as many as 40 percent of small businesses may suffer embezzlement losses, small or large. Another study I came across said that the average amount embezzled from small businesses was over $127,000.

Exact data is hard to track, however, since many cases go unreported. The Auditors Inc. survey indicated that only 2 percent report the crime. Most owners are too embarrassed to report it, and they worry it will destroy their credit rating or bonding capacity if word gets out. Prosecution can be costly and time-consuming and not worth the trouble if the amounts stolen are not huge. Most commonly, they simply fire the bookkeeper, who is then free to seek another job doing the same thing.

I’ve lost count of how many episodes of embezzlement I’ve heard of in the construction industry throughout my career. The most recent one was last year when a large residential plumbing contractor told me of prosecuting a former bookkeeper with a gambling problem who had siphoned off around $40,000 from the business. This contractor was an astute business operator who had controls in place to identify embezzlement. That’s why his loss was limited to 40 grand. I’ve heard of less well-prepared companies getting ripped off for millions over time.

Most embezzlers know how to steal just enough to be hard to detect. Typically it involves phony invoices or siphoned payments of a few hundred dollars or less. The amount might not raise any eyebrows in a monthly financial statement, but the total adds up over time. Often the employee rationalizes stealing from the company because he or she feels underpaid. It often begins with minor amounts, sometimes even with the intention of paying the company back. But as soon as embezzling employees realize they can get away with a little without getting caught, the tendency is to take more chances and bump up the amounts.

Precautions to Take

It’s not my intent to instill paranoia and get all of you staring daggers at the office manager who’s been working for you for years and may be as much a friend as an employee. I’m sure most of these people fully deserve the trust you place in them. Yet, it’s useful to keep in mind something the leaders of the United States and Soviet Union used to say when asked if they trusted each other to adhere to nuclear arms agreements: “Trust - but verify.”

Here are some rules and procedures to follow to guard against embezzlement.

• Be diligent when hiring for positions that involve company finances. Be wary of job applications and résumés that show frequent job changes, and be sure to ask for and check references thoroughly. Don’t make just one phone call for a background check. Call all former employers, whether they are cited as references or not.

• Do a criminal background check.

• Even if you are a “hands-off” owner, give yourself the job of examining all canceled checks and bank statements, and make sure you understand what every check was for. If your company is too large for you to oversee every transaction, at least separate job duties so that employees charged with writing or depositing checks are different than the ones who balance the checkbook.

• Keep an eye out for payments made to unfamiliar vendors. Find out who they are and what they’re getting paid for. Ask yourself if the amount and frequency of the payments seem reasonable.

• Have checks sent to a post office box rather than a mailing address, and limit access to the P.O. box.

• Separate money collection duties from accounts receivable, and purchasing from accounts payable.

• Personally investigate customer complaints about double billing, as well as slow collections and inventory shortages. They could be innocent mistakes, but they also could be warning signs of embezzlement.

• Check out employees who seem to live beyond their means. I know of one embezzlement scheme that started to unravel when the owner of a company attended the wedding of a key employee’s daughter. The owner wondered how the employee could afford such a lavish reception and began to investigate. Be especially wary of people with a fondness for casinos and racetracks.

• Keep an eye out for employees with financial and personal problems. Let them know you’re aware of their situation and offer to help if possible, but also keep them away from tempting opportunities.

• Workaholism is another warning sign. Embezzlers frequently cook the books working late and on weekends when nobody else is around. They are reluctant to take vacations out of fear that someone else may look at the books and discover their schemes.

Frequently the thieves are trusted employees of long tenure. It comes as a devastating shock to learn that all those friendly smiles, hard work and extra effort were part of a grand scheme to divert attention from hands in the till.

Trust, but verify.