James and John came into my office one day and were noticeably shaken. James had just come from the accountant and learned that his business had lost $400,000 in the previous year. In obvious disbelief, he asked if I could help him figure out what the problem was.
In our discussion it came out that they had fired one of their bookkeepers in the past year because they suspected her of theft. I wasn’t surprised. While I’ve found that most people are honest, a percentage of the population isn’t, and they might steal from you.
Here are some ways you might be getting ripped off:
Cash: They say cash is king, but cash is also easy to steal. If you have employees handling cash, you need to be aware of opportunities for them to cash in.
We’ve all heard of employees skimming a till or cash box at the end of their shift. One customer told me a staff member was telling customers that the total was a certain amount that she calculated with a calculator rather than the till. Because the customer didn’t get a receipt, they suspected the staff member pocketed the cash.
Having cash lying around or not accounting for every dollar is a mistake you might be making, turning relatively honest employees into thieves of opportunity.
Refunds: Refunding or returning goods or services at the point of sale or credit card or debit machine without an actual customer or product, and pocketing the cash, is a pretty easy way to evade detection. To prevent this, you should check your statements regularly for returns and match them to corresponding records.
Recently we had a client who found a staff member going into the business in the middle of the night and running returns through the debit machine. They eventually found a loss of tens of thousands of dollars.
Deposits: Stealing money from your cash bank deposits can easily happen if you’re not cross-checking your daily take with your deposit amounts.
Credit cards: If you have company credit cards, you should look to see that every transaction is matched with a receipt. That receipt should be for products or services you actually buy.
One of our clients caught an employee because he found a credit card invoice for purchases at a company he didn’t use.
Time theft: Have you ever had an employee who came in late or left early without making adjustments to the schedule?
Every hour a week you lose to time theft costs you a minimum of $1,000 per year. Verifying overtime and insisting on changes to the schedule for missed time is important.
Vendor fraud: This can happen regularly in high-volume businesses. Whether by error or intention, mistakes on invoices from your suppliers happen. It’s your job to have a system where you or a team member verify that what you were invoiced is shipped and it’s at the same price you were quoted.
Misappropriation of your goods or services: If you’re in retail, you’re well aware that shoplifting is a growing problem. Dealing with shoplifters is a non-stop concern.
However, it’s estimated that more theft of goods and services is due to internal loss than external. Theft of your assets – including small supplies, tools, and products that go out the back door of your business or “fall off the truck,” as they say in Ireland – can be a big problem.
In one case, I caught a janitor loading his backpack before he left work. In another incident, a contractor’s employees were helping themselves to products and leaving the packaging on the shelf. Both were fired.
Fraud: You might not think this could happen to you, but we worked with a company recently that caught someone who worked with them who created documents on company letterhead that enabled them to benefit from contracts worth hundreds of thousands of dollars.
Fraud can be expensive for you, your suppliers and your customers. It’s part of your duty to understand how you could be defrauded.
Corruption and bribery: If you go to a Third World country, corruption and bribery seem to be a way of life. The same is happening in North America. We more frequently encounter situations where staff are being paid money or receiving goods or services to ensure that people or companies receive contracts that aren’t the lowest or most beneficial to the business.
In one case, corruption was discovered when two new recreational vehicles showed up on an employee’s lawn one afternoon.
If you have staff members putting pressure on people within your organization to buy from specific vendors and you can’t understand why, you may wish to look deeper.
Data theft and piracy: If you own a company that deals in information, don’t be surprised if you find that one of your employees has sold their passwords. Having information technology companies as clients has opened our eyes to the number of businesses paying third parties to release their data.
There are a number of other ways you could be taken advantage of, including but not limited to health insurance fraud, false claims for injuries, commission scams, expense reimbursement scams, and use of your vehicles or assets for private use. The list could go on.
You need to understand that your business is vulnerable to theft – every organization is.
Three things you can do to reduce your risk
- Communicate that you’re watching and have systems in place to reduce external and internal threats to your profitability.
- Implement systems that segregate functions that involve activities where you could be put at a loss. This includes separating bookkeeping functions to keep people honest and implementing checks and balances to ensure accuracy and accountability.
- Read and audit your financial statements. This includes ensuring you read monthly comparative income and balance sheets. Ask for more details on a regular basis when you have questions. Be curious about why there are changes in statement items.
By the time James and John had left our offices, we had determined that the bulk of their annual loss probably wasn’t due to misappropriation of funds. However, their labour costs had gone through the roof.
They believed there may have been some time theft and other efficiency issues, and they left with a plan to tackle their problems.
They might have been cheated, but they couldn’t prove it yet. Are you being cheated? Can you prove it and stop it?
Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc. You won’t feel ripped off if you email a question to Dave because he responds with value. [email protected]. For interview requests, click here.
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