My friend Jim was shocked. His office manager—trusted for over a decade, an integral part of his company, someone he considered practically family—was stealing from him.
She had been giving herself bogus overtime and vacation pay for over a year. If he hadn’t stumbled onto her misdeeds, she probably would have continued to do so for who knows how long. All the while, smiling and working alongside her unsuspecting boss.
Jim was embarrassed and hurt that someone so close had so profoundly broken his trust. He asked us to calculate the cost of her misdeeds. It ran into the thousands! After the dust settled, we had an awkward conversation over lunch about how his management (or lack thereof) had contributed to the problem.
I never want to have this kind of discussion with you. Here are some ideas I shared with Jim that will help you avoid flunking Financial Controls 101.
Who Knows What a Thief Looks Like?
The problem with employee theft is the thief is hard to spot. They’re often a trusted staff member who’s worked with you for years. I’m not saying all long tenured employees will steal. But here are some warning signs:
- Super-dedicated employees who never take vacation or call in sick. They never delegate their work. They prefer to be unsupervised. They often come in early or stay late. All of this behavior adds up to one thing. They don’t want anyone to discover what they’re up to.
- Staff members who are obsessed with nobody touching “their stuff.” They might lock their desk or their office when no one else does.
- Employees who seem exceptionally close to a customer or vendor. I mean beyond common friendliness. They appear to be best buddies and may spend time with each other after hours.
What Are the Warning Signs?
In hindsight, these are easy to see. “Doh! Why didn’t I notice that?” Here are a few indicators that something fishy might be happening.
- Unexplained debt or lower than expected cash balances. Maybe the credit card company calls to say you exceeded your credit limit, which is unexpected. This is how Jim discovered his office manager’s theft. She paid herself an exceptionally large Christmas bonus. So when the payroll company pulled the payroll batch, the bank account went negative. That seemed odd to my friend. There should have been plenty of money to cover year-end wages.
- Missing financial records. This was Jim’s next clue. When he asked his office manager for copies of the payroll records, she couldn’t find them. Any of them—going back for over a year! And she was the one who submitted this information to the payroll company. Over time, she realized that her boss never reviewed the payroll reports. She saw her opportunity.
- Consistent complaints about a staff member from co-workers, customers, and vendors. The gripes probably have a consistent theme, and could range from “takes forever to get back to me,” to “is super irritable,” to “not a team player.”
- Suspicious activity in the QuickBooks file. This one may harder for a financial novice to spot. Call me.
I don’t tell you this to make you suspicious of everyone at your company—but to raise your awareness of the “who” and “what” of employee theft. Next month, we’ll cover some key financial control steps you can take to avoid finding yourself in Jim’s shoes.
Wishing you lots of positive cash flow.
What Can I Learn Today to Improve Our Financial Performance?
You can hear when an engine is running smoothly—or racing or sputtering. The same is true for the financial drivers of your business.
You just need to know what to listen for. The good news is that your numbers are talking all the time!
Here are the best ideas we can find on how to ask your business for the information you need, to understand what it says, and take action on what you learn.
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What’s on Your Reading List?
- The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It, by Michael E. Gerber
- Profit First: A Simple System to Transform Any Business from a Cash-Eating Monster to a Money-Making Machine, by Mike Michalowicz
- Managing by the Numbers: A Commonsense Guide to Understanding and Using Your Company’s Financials, by Chuck Kremer, Ron Rizzuto and John Case