Some of you were upset with the sundress story from my last post. As my business partner, Paul, has often said. My greatest strength is that I tell it like it is. He also said it's my greatest weakness. I agree. In my defense, if I prevented just one person from wearing a sundress to work, I have served humanity well.
Here's a quick test to see if you should be a business owner. What was your first thought after reading the sundress story? Was it, "How dare he tell a story about an employee"? Or was your reaction, "His clients had to see her dressed like that"? If your reaction was the first one, don't mortgage your house, empty your 401(k), and start a business. You will be making an expensive mistake.
Here is a key point business owners understand. Businesses exist to make money. While I can't say the sundress cost me money, I can absolutely state the sundress's purpose was not to make money. At least I hope to God it wasn't.
I gave a talk to a chamber of commerce group about the dangers of employee theft about ten years ago. I talked about preventing it with segregation of duties and some other absolutely brilliant insights. Afterwards, a man came up to me and said he didn't have the time to take any of the actions I suggested. He was a busy guy. He trusted his bookkeeper implicitly. That is when I learned the meaning of implicit. It means stupid.
A few years ago, the bookkeeper for a client scheduled a meeting with me. She came in and told me that the company owed a substantial amount in unpaid payroll taxes - about $500K. That shocked me as their bookkeeping records showed nothing of the sort. Then she told me that instead of paying the IRS, she was taking the money personally. How did she do that? She was a signer on the company bank accounts and just transferred $700K or so to her personal bank account, recording the payments as if she were paying the IRS. The owner trusted her implicitly.
Employee theft happens to almost every business. Don't be embarrassed about it. Prevent it from recurring with three simple steps.
First identify your company's vulnerable property. If you have valuable inventory that is easy to steal, start your list there. Your bank account always makes the list. To misquote Billy the Kid, people steal money because that's where the money is. Your credit card machine could be another opportunity for a thief.
A few years ago, I got a call from a panicked client. He had gotten a call from his credit card processing company. They told him that his account had processed an unusual amount of credits in the past week - all to one account. His bookkeeper had been processing credits against her personal credit balances using the company credit card machine, to the tune of about $40K. In effect, she transferred, via credit card chargebacks, $40K from the company bank account to pay off her credit cards.
Second, determine who has access to the valuable property on your list. Your internal bookkeeping staff should always be on the list. Your warehouse or purchasing manager should also make the list.
Before we started the CPA firm, I worked as controller for a company that installed telephone systems. We had a purchasing manager, who was in charge of the warehouse as well as purchasing. We caught him accepting kickbacks from a company that sold lightbulbs. He had purchased hundreds of useless lightbulbs and hid them under a compartment in the warehouse ceiling. He got caught, because the company was broke and I was paying attention to every invoice we got. We got suspicious at the number of invoices we were getting from the office supply store selling the lightbulbs. I didn't write that thieves are particularly bright.
Third, enforce segregation of duties. The person depositing your customer checks should not be the same one applying the payments in your accounting system and making collection calls. She can steal customer payments and hide the theft, because she has complete and exclusive access to the entire accounts receivable processing cycle.
If you have valuable inventory, mandate a system where inventory is signed out by technicians. The inventory should be stored in a locked area with no technician access. A manager should be in charge of issuing the inventory from the controlled access area.
The person printing your checks should not be a signer on your account. This seems pretty obvious, but I see this all the time. Also, bank statements should come to you unopened. Scan the statements for unusual transfers and large checks.
Segregation of duties makes employees collude to steal. While this doesn't absolutely prevent theft, segregation makes theft exponentially more difficult. Fortunately, thieves tend not to trust each other, and justifiably so.
Finally, only the people you trust can steal from you, because you don't give people you mistrust the opportunity. Trust no one implicitly, even your spouse, if he or she works in your business. A few years back, as the result of a divorce, a client discovered that his bookkeeper wife had put her parents on the company payroll with salaries over $100K annually. Talk about miserable in-laws?!? Thanksgiving must have been wonderful in that house.
This week we mourn the injury of RGIII. I was never able to get insurance on him. You might remember a post from the beginning of the season where I predicted he would get killed behind the Redskins offensive line. Their pass protection this year was truly offensive.
I'm not one of those second guessing Mike Shanahan for playing him in the playoff game against the Seahawks. RGIII's superhuman feats during the season seduced his coach into making a bad decision. As I told everyone during the season, enjoy every game you get to watch RGIII. With a running quarterback, any game could be his last. Get well soon!! Until then, thank Mike Shanahan for being stubborn enough to draft a second franchise quarterback, Kirk Cousins, despite other pressing needs.
As always, thanks for reading, and don't take me so damn seriously. For real tax and accounting advice, visit our S&K web site at www.skcpas.com. Also, like the "How to Screw Up Your Small Business" Facebook page. I post mercifully short tips there every day. Until next time, let's do it to them before they do it to us.
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