As consultants, we are seeing a dramatic increase in embezzlement and employee theft. During tough economic times employees can experience more financial problems; throw in some drugs or an enabled employee and you have a formula for disaster. Now that things are tougher and you’re watching every penny, don’t be surprised if you find employee theft.
As consultants, we are seeing a dramatic increase
in embezzlement and employee theft. During tough economic times employees can
experience more financial problems; throw in some drugs or an enabled employee
and you have a formula for disaster. Now that things are tougher and you’re
watching every penny, don’t be surprised if you find employee theft.
People are human and there will always be dishonest people. You need to make
sure you have honest people working for, and you keep them honest. My dad used
to say, “Locks are to keep the honest people honest.” Locks are an annoyance to
dishonest people but they will find a way around them. They are really to keep
honest people from being tempted to do dishonest things.
We know that all contractors are busy; however, if you let someone in your
office handle all the money and never check up on things, you become an easy
target. Your best defense is to know your numbers and have them reviewed by
someone outside your office, usually your accountant. You don’t need to know
the account codes and how it all gets entered. You do need to be able to look
at the reports and know when something doesn’t look right. By looking over your
numbers on a regular basis, making notes, and asking questions, you are less
likely to get ripped off. Your local liquor store does weekly inventory. They
really don’t do a complete inventory every week, but the employees see it being
done and know their managers are watching.
Theft usually starts out small. An employee will test the waters on a small
purchase and then it progresses to larger things. It can become a gambling
addiction. Few will stop on their own. They will either leave the company when
the scrutiny is applied or get fired for stealing.
Mistakes are often made when hiring a new bookkeeper. You should always do a
criminal background and credit check on anyone that handles money. If they
can’t manage their own finances, do you really want them handling yours? Check their references. Ask their previous employer if they would rehire them
to do their books. Most will tell you if they would. If someone tells you no,
you probably don’t want them working for you, either. If they were in prison,
there is a good chance their reference is fake.
The introduction of electronic payments has made it even easier for someone to
steal. No signature is required to make electronic purchases and credit cards
can be used for just about anything. Debit cards are even worse, as many of the
debit protection laws don’t apply to business. Make sure you open and review
your credit card statements every month. You need to catch anything wacky right
away. Along with checking the card statement you should be reviewing the mail
and opening all of your own e-mail. If you don’t look at all the information,
or make it appear you are, you only get what someone else gives
Signs of employee theft are more obvious than you may think and can include a
bookkeeper or warehouse manager that never takes time off or someone that keeps
confusing records. Watch out for employees who they keep all the passwords,
have keys to all the files and won’t let anyone else in them. Entitled
employees who feel you owe them something can also be suspect.
Be aware of your employee’s personal situation. Do they have a child with a
drug problem, a spouse with serious medical issues, personal debt, or a lot of
personal issues? Obviously, just because an employee shows some of these signs
does not mean they are stealing, but don’t be naïve - a dying child can cause
almost anyone to steal.
Theft comes in many forms. Employee theft can also occur in the field. Make
sure your guys aren’t using your trucks to do side work or ordering materials
on your accounts. Check each material invoice for delivery locations and who
signed for the materials. They should match up with your job locations and your
estimates. If not, you may have a field employee stealing from you. Allowing
employees to do side work can also contribute.
Make sure you keep your business and personal finances separate. Having them
together can encourage people to steal. Don’t run your wife’s car, your
parents' contracting, repairs to your home, or other non-business items through
the business. People develop the mentality of “the boss does it, why can’t I?”
Make sure you are running a legit business. If you do shady things in the business,
it will encourage others to do shady things. Not only that, if you catch them
and prosecute, they can threaten to turn you in to the IRS.
Embezzlement is far more likely to hit you than your shop burning to the
ground. It is best to be prepared if it does happen. Your insurance agent can
advise you on adding a rider to your policy to cover employee theft. They can
determine how much coverage you need. It doesn’t cost a lot and is worth it if
you need it.
Pay attention to your numbers. Neglected numbers are just like any other
relationship. If you don’t pay attention to your wife or girlfriend, eventually
they will find someone else who will. If you don’t pay attention to your
numbers, your money will end up leaving too.
Monroe Porter is president of PROOF Management Consultants, a company
specializing in business consulting for contractors. He is also founder of
PROSULT Networking Groups, developed to help noncompeting contractors.
He can be reached at 800-864-0284.
To sign up for his free quarterly newsletter or CD programs, please visitwww.proofman.com.