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 you.
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 visit www.proofman.com.