Ruth King
Contributing Writer
Profitability Revolution Paradigm

Employee embezzlement is one of the most sickening things that I’ve ever uncovered working with contractors for the past 27 years. Most times it happens because someone is under a huge emotional strain and they aren’t thinking straight.  They make stupid choices that they never would do if they were thinking rationally.

If you don’t have systems in place it is easy for the stressed out bookkeeper or stressed out employee to get tempted. Under normal circumstances they never would do something that is unethical or immoral.  However, they get tempted and may try.  Once they find they aren’t caught the second time it becomes easier. The third time is even easier.  Before you know it, they’ve taken thousands of dollars in cash or materials.

“I’d trust my bookkeeper with my life” is a statement that I’ve heard over and over again from business owners.  That statement makes me cringe.  I know many “trusted bookkeepers” who have been embezzling small, almost unnoticeable amounts (unless you know where to look) for 10, 15 or more years before they are caught. Those little sums add up to thousands of your hard earned dollars that they’ve taken.

The job of a good embezzler is to become the trusted bookkeeper.

No one wants to believe that one of their employees is stealing.  It’s discomforting and shocking when you discover it.  (It’s not fun for me to tell owners either). Then you have to confront that person (or people) and decide whether you are going to prosecute them, demand your money back, and definitely fire that person.

Over the next three months I will write about the simple procedures to put in place so that when one of your employees gets stressed out because of a life situation, he is not tempted to do something unethical and morally wrong. These procedures help keep the honest people honest.

The first and most critical procedure is to send your bank statements to your home address. This means that all bank communications come to your home.  Look at them. Go through the checks every month.  You’ll learn a lot.  In addition, you’ll learn about checks that have bounced, late loan payments, and be the first to get the bank correspondence concerning your hard earned money.  This is the first line of defense in making sure that you keep the honest people honest when they are dealing with YOUR money.

It takes no more than 15 minutes to go through your bank statement.

Look for names of businesses that are close, ie. ABC Inc and ABC Company.  Why are checks written to two companies with similar names?

Look at the signatures. Do they look right? Do you remember signing that check?

Look at the amounts.  Do the amounts seem right?

Ask questions when something doesn’t look right. This sends a message to your bookkeeper that you are watching.

It is not only your bookkeeper who can embezzle.  A contractor saw a check written to an auto repair shop for $545.  He didn’t think it looked right so the next morning he brought the check to his bookkeeper.  She pulled the back up and saw that the original check was written for $45.  He went to the bank with the cancelled check and back up (purchase order, invoice from the vendor, and check stub). The bank credited his account for the $500 and went after the vendor.

But, you say, “I get my bank statement in my office unopened”.  The envelope still can be opened “by mistake”.  In addition, even if you get the statements in the office “unopened” you still may not get the notices of bounced checks, late loan payments, and other bank correspondence about your account.

The second thing you should never do is to accept excuses from your bookkeeper. If your bookkeeper always has an excuse about why the financial statements are wrong or late, take a hard look at the proficiency of your bookkeeper.  That person may have reasons for mistakes because she is hiding embezzlement. Not getting an accurate, timely financial statement and not balancing the checkbook are the two greatest warning signs that something is amiss.

Good bookkeepers know that the financial statements must be in your hands by the 10th or, at the latest, the 15th of the month.  If this isn’t happening, then you need to get someone who can accomplish this.

Good bookkeepers are mortified when someone finds a mistake they have made.  They pride themselves on being accurate 100{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} of the time.

Good bookkeepers welcome oversight.  They want someone looking over their shoulder to make sure that the accounts are in order and everything is accurate.  One of your greatest hints that something is wrong happens when a bookkeeper fights against a consultant or CPA coming in to the company and reviewing financial practices and financial statements.

If you aren’t having your bank statements sent to your home, call your banker now and make the change.  If your bookkeeper always has an excuse, see whether she knows bookkeeping (email me (ruthking@hvacchannel.tv) for my bookkeeper test). If she does know bookkeeping, then start looking for embezzlement.

Ruth King is CEO of HVACChannel.tv and a nationally recognized HVAC expert. You can reach her at ruthking@hvacchannel.tv or review her manuals at www.hvacoperationsmanual.com.