Small Business Resource

This just in from Laurie Owen, Senior Vice President of Business Resource Services out of Seattle. They were at our ASBDC national conference and offer up this interesting article by way of follow-up.

A convicted felon shares his story and the steps you must take now to protect your business from internal theft.

It was so quiet you could hear a pin drop in the normally chatty group of jewelry store owners. The presenter spoke quietly, even a bit nervously. His message, however, had everyone in the room mesmerized. The topic was employee theft, the venue a business performance group, and the speaker, a convicted embezzler and someone known to one of the members. Although his former employer was not a jeweler, the circumstances and the impact of his actions hit close to everyone one in the room.

Our speaker, whom I will call Ted, shared with the group how he managed to steal over $500,000 over the decade he was employed with a family-owned food supply company before he was caught and ultimately sent to prison.

He started as an hourly employee doing odd jobs, then graduated to warehouse worker, and eventually worked his way up to general manager. During the time he was employed, the company grew rapidly from a $5m to $15m company. He worked hard, often putting in over 80 hour weeks. As the owners trust in him grew, so did his responsibilities. The more time he put in, the less the owners did. His stealing started small, with a few supplies here and there out of the warehouse. As Ted rose up the management ladder, his opportunities and boldness grew. He graduated to creating fake invoices, which in turn, were paid by real company checks. He had a partner on the outside of the company who helped cash the checks.

He was caught by chance, when one of the owners happened to review the accounts payable. One of his fake invoices happened to be on top of the pile. The owner did not recognize the vendor, and curiosity compelled to learn more. Things started to quickly unravel and eventually the magnitude of the embezzlement came to light. A conviction resulted in a jail term of over 4 years, two of which were actually served due to good behavior. He is now, he says, a reformed man, who has created an honest and ultimately much more satisfying life for himself.

His key points to the group to prevent a similar occurrence in their businesses:

Trust no one; Verify and cross check everything

Don’t give any one person too much responsibility

Treat your employees fairly – pay people what they are worth

Stay involved in the business and with your employees

Don’t let anyone else sign checks for you. Don’t use signature stamps

Set a good example. If employees see you taking things (supplies, etc) out of the company, they’ll think it’s ok for them as well.

In addition to criminal background checks on prospective employees, do credit checks. Get them to sign over permission to do so on their employment application.

Institute a proper division of business functions between preparing checks, receiving payment, making bank deposits, signing checks, opening mail, and bank reconciliation.

Have a good, computerized bookkeeping system and competent bookkeeper and outside CPA, who conducts periodic security audits.

Know your costs and the benchmarks for your industry so you can spot things that are out of alignment.

Educate all employees on the negative impact of theft. Solicit their support of and involvement in the prevention and detection of theft.

Don’t give employee advances. Get rid of employees who need them. If they are that close to the edge financially, chances are they will be tempted to steal.

If you are a victim of embezzlement, by all means prosecute. But spend your resources on a good credit attorney who will be your best chance of finding where the money went – so you have a chance of getting back.