Does Your Business Have a Cheating Culture?

This post is in: Business

Our book is done! Or at least it’s now out of our hands. Look for “Smart Business, Stupid Business” Spring 2010.

Meanwhile, here’s one of the many stories from the book. This true-life story is about employee theft.

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, Rick, with a thriving retail business in Michigan, near the Canadian border. 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 some 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 Cherise noted was that although they had a full-time bookkeeper on staff, they hadn’t any financial statements in years. They had both a retail and a 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 that 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 everything 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 now we needed accurate financial statement 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 chance 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 Rich had been ‘cooking the books’ by stealing from the top-line of the business, it was easy for Barbara to steal money, too.

Employee theft. It destroys businesses every day.
In the next few days, I’ll post some anti employee theft strategies that can save your business thousands of dollars. Over half of all businesses are embezzled from once. Don’t lose your hard-earned money to a thief.


  1. Stephanie Davis says:

    Those are some startling statistics. I look forward to your posting of theft strategies.

    Many Thanks!

  2. I’ve met so many hard-working business owners who are hurt when an employee or partner ends up stealing from them.

    The lucky ones are the ones who find out quick. I remember one thing I learned from a client, who learned it from her Dad who mentored her in business, “If you ever think something might be wrong, it probably is. Just thinking about it means something is wrong.”

    It’s not normal to not trust someone and so if you suddenly start thinking it’s wrong, it probably is.

    Sobering thoughts.

  3. Erik says:

    I have some first-hand experience with this. I was brought in to help manage a business and found the financial records were nearly non-existent. Basically they’re recreate business records from statements every tax season but didn’t really know what was going on with their business. I couldn’t even make reasonable headway with the “owner” because he was off trying to make deals all the time (for more financing). I finally couldn’t take the stress anymore and bowed out gracefully once the state started questioning the absence of sales taxes due to them.

    The real lesson is that you can’t just run the front of a business and hand off the back-end stuff and trust that it’s getting done. If you don’t take an active hand in oversight of your back office sooner or later it’ll come around to bite you.

  4. Thanks for sharing that story Erik.

    I see that all too often – business owners are great at one thing or the other. Maybe (like your story) the owner is great at raising money and making sales. But he never cares about fulfillment. In fact I’ve seen owners who publicly ridicule the people who do that, calling them easily replaceable. Business always fails in the end.

    On the other hand, just to keep it fair, you do need sales and someone driving the top line (gross revenue) for the business.

    If you don’t have both – driving the top line and someone watching the bottom line – your business will be a short-timer.

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