Don’t be blind to embezzlement signs

One common trait of any long-term scam is the level of trust that is deceptively established before and even during the ultimate betrayal. That said, settle in: I have a few tales to tell.

“We had a customer who always paid cash. So, each day our route driver would bring the delivery sheet and cash into the office manager for deposit. It is kind of unusual to have a business pay for goods delivered in cash, but that is how this guy wanted it done, so we did. My office manager worked for me for over 20 years. She did a great job working in the warehouse before she worked her way up.”

I could still hear the hurt and betrayal in this employer’s voice as he spoke of her. He went on to tell me how she managed to pull off a theft streak with his company for two years.

“Of course, she showed the sale on the commission sheet for the sales rep, but had to deduct it someplace so the accounts would balance. She deducted it from my sales because she knew I did not look too closely at that because, being the owner, I did not receive commissions, so paid little attention to that part of the accounting. Well, she got careless one day and didn’t balance, and that’s how another staff person caught her.”

The incident triggered more research and the discovery that over a two-year period this seemingly stellar employee had skimmed more than $60,000 from the company.

Ouch. A 20-plus-year employee embezzling your company must feel similar to discovering a family member stealing from you.

Relational embezzlement unfortunately happens quite a bit, adding to the reality that theft by employees is a silent giant. Happens every day, and yet we seldom hear about it. Why? It is embarrassing to admit you are a victim.

As business owners and managers, we feel like failures when this happens, but we shouldn’t let such experiences stunt us. In this case, several things came together to make it harder to detect. The office manager did everything. She limited the take to just a couple of times a month, and in turn, spent years doing a great job establishing trust.

The owner in the above scenario e-mailed me again after he heard from yet another local business owner who had just discovered a longtime employee embezzling funds. A large but fairly quiet group of victims, to be sure.

Suffice to say, some scam activity is blatantly straightforward. A staff member simply steals checks, makes them payable to a shell company, themselves or a cohort. And if that staffer also balances the bank statements, you will most likely not discover any red flag activity for quite some time.

So, if many businesses are likely to experience this form of betrayal, what can we do to reduce the risk?

“Do not let one person do it all, and have someone else balance the bank accounts.

“Make sure the person opening the mail, receiving the money or processing the credit card batches is not the same one making the deposits.

“Set up spot audits with your CPA to keep the honest person honest.

“Screen employees, conduct background checks and ask lots of questions if there are gaps in a resume.

“Be sure your background checks include full credit reports, as desperate people do desperate things.

“If something is even a tad amiss, jump all over it and verify; don’t just trust!

“Cross-train and move duties around every once in a while.

“The worst thing is to sit back thinking you are safe because you do not handle cash in your business, for in another revelatory scenario, a salesperson was taking past transaction information from the rest of the sales staff and processing new sales in other customers’ names. So be sure those credit card and bank account numbers are not available to so many staff not needing that access.

The first steps if you find you are a victim:

“Call your police or sheriff’s office and report the crime.

“Even if law enforcement tells you prosecution is unlikely, push to file the report so it shows up in a background check.

“Call your attorney and your CPA for their advice on pinpointing other options.

“Check your insurance coverage to see if it offers “employee dishonesty” coverage.

If law enforcement could devote a huge amount of staff time to this kind of crime, the sad truth is, they’d never get caught up. That is not likely to happen anyway because with this crime, there is no blood or violence and everyone is still alive.

Preventing this crime comes down to a simple matter of priorities and budgets on the part of the business ownership. Just ask law enforcement about the victimized companies that never call and never press charges.

Those businesses are just passing on the poison by letting the scammer move, unmarred, on to a next victim employer. One detective even told me that one area employer was a training ground for thieves. Thanks a lot to that business from the rest of us.