Another small business owner defrauded

I’ll be in Denver, sharpening my saw all weekend at the semi-annual conference of The Alternative Board®, so I’m posting early this week.

I had an evening call from a client last night. He recently discovered fraud in a small branch office. Although he terminated the employee (the branch manager) the problem keeps growing. As he said last night; “Some things, the longer you chew on them the bigger they get.”

Well over half of our clients admit to having been defrauded by an employee sometime in the past.The more cynical of us say that the rest just haven’t figured it out yet.

ALL employee fraud in the workplace has three components: need, opportunity and rationalization. Ten to fifteen percent of employees will look for a way to steal as soon as they walk in the door. About the same number wouldn’t take a dollar if it was left collecting dust on heir desk for years. The 70 to 80% in the middle are situational thieves. They first have to have a need. Bill collectors are calling, a family member is sick, a vehicle is broken down.

The opportunity is some flaw in your systems, a chink in your armor, that allows them to think the theft will go unnoticed. In this case the branch manager collected cash during the day, and faxed the deposit slip to the main office every afternoon at close. The chink? She only faxed the front of the slip. The back (where the bank stamped for receipt of the deposit) wasn’t checked until the statements came into the head office after month’s end.

The rationalization? Her tax preparer told her she had a big refund coming. Bill collectors were calling. She thought “Why should I face his harassment for weeks to come, when I can slip some money out of the deposits, pay my bills, and put it back before they know it?”

Her type of fraud is called “kiting.” She took money from one deposit, and rolled back money from future deposits to cover it. The deposits were just dropped at the bank a few days late. A simple check of the date stamp would catch it, but the owners weren’t looking. After all, a deposit was being made for each day of business, and the clerk reconciling the statement just assumed the bank took a couple of days to get them on the books.

Most employees start out thinking they’ll put the money back. Then nothing happens. They are nervous for a week or two, but that soon wears off. They start thinking that they will never get caught. She quickly expanded her operation to a second receipt book for customers, and phantom entries for missing payments in the computer. Pretty soon she was doing so many things it had to draw attention, but by that time she was into the owners’ pockets pretty deeply.

Remember- No small business owner has ever been defrauded by an employee he didn’t trust.

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