What’s your biggest challenge in business today? Customers? Payments? Fulfilling orders? Excess taxes? Technology? Competition? There’s a lot to choose from these days. But the biggest problem might be something (or rather someone) you don’t even suspect.
Here are some frightening stats:
Employee embezzlement has been estimated as high as $652 billion annually.
That number seems so huge that it didn’t even seem right the first time I heard it. But it seems that the estimates are anywhere from $400 – $700 billion. The problem is most don’t report it. But even if it was just $1 billion – these are employees! People that you have entrusted with your business, your customers, your inventory….YOUR money! And it may just be disappearing.
Over 70% of medical offices are embezzled from once. Over 60% are embezzled from twice.
Before you say “That can never happen to me”, let me tell you about Cherise. (By the way, Cherise is not her real name. But the story is all too real.) The story comes from Smart Business Stupid Business.
An Atmosphere of Cheating
Cherise had years of experience as a bookkeeper when she decided to try something new. She had a long-time friend, Rich with a thriving retail business in Michigan. He had both US and Canadian tourists filling his store on the weekends to buy his unique, hand-crafted items.
He had a huge facility and a lot of staff. The items had a low manufacturing cost and they fetched a high price on the open market. Yet, for inexplicable reason, Rick’s business was always late paying its bills. He was now looking at some serious financial problems. Cherise bought in as a 50% partner for a song because her friend needed her expertise more than he needed the money.
The first thing that Cherise noted was that they had a full-time bookkeeper on staff, but there hadn’t been any financial statements issued in years. They had both a retail and wholesale business, so profit margins were all over the place. And without financial statements, no one could be sure what they were anyway.
The other thing she found had her even more concerned. Her long-time friend was a tax cheat. Rick had a habit of not ringing up sales on the cash register when he was working. Instead, he’d put the money straight into his pocket. With his new partner, Rick wanted to keep things fair. So he started a new system. For every dollar he put in his left pocket, he put another one in his right pocket for Cherise.
That’s when Cherise called us. She needed some help showing Rick that there were plenty of ways to legally pay less tax. He didn’t need to cheat to do that.
Rick listened. But we needed accurate financial statements in order to do good strategic planning. Plus, Cherise wanted to find out why the company wasn’t making more money.
Rick had been in business for over 30 years and for 27 of those years Barbara had been his bookkeeper. He trusted her with his life. Cherise couldn’t stand her. She could never get a straight answer. Barbara hid the records every time Cherise came around.
Finally, Cherise got fed up and told Rick that unless he ordered Barbara to start producing accurate financial statements, she had to go or Cherise was going to withdraw from the partnership.
First, Rick argued and cajoled. Barbara had been with him almost from the beginning. He trusted her with his life. Without her, he wasn’t sure the company could even exist. But he finally agreed to Cherise’s demand.
Rick put his foot down with Barbara. And that’s when the rest of the story came out. She broke down crying. She had worked for Rick for 27 years. And for 24 of those years, she’d been stealing money. Because Rick had been “cooking the books” by stealing from the top line of the business, it was easy for Barbara to steal money, too.
Are your employees ripping you off?
Or, if you don’t yet have employees, what can you do as you add team members to make sure you keep the money you make?
The good news is that some of the simplest things can protect your assets. Here are three quick strategies to help you out. We have 25 Embezzlement-Busting Strategies to Protect Your Business in Smart Business Stupid Business. Best of all, it’s on sale starting tomorrow (or today, if you click HERE now). You’ll get both Tax Free Real Estate Investments and Smart Business Stupid Business for the price of one.
On Thurs, I’ll go over some more embezzlement-busting strategies. Meanwhile, here are three simple ones you can put in place now:
Strategy #1: Hire the Right People.
Do more than just check references. Do a background check on all employees who have access to inventory, accounting or money. In fact, it is best to do a criminal check on all of them. Read more in Smart Business Stupid Business!
Strategy #4: Enforce Mandatory Vacations
Most embezzlement scams need the embezzler present. The scams generally aren’t that sophisticated. Take the person out of the loop for a week, and the whole scam falls apart. The enforcement of mandatory vacations will aid in the prevention of many frauds.
Strategy #13: Pay Only Original Invoices, Never Photocopies
Once you’ve signed the check, make sure your bookkeeper stamps “paid” on the invoice immediately. Watch for missing or altered documentation.