In Mark Twain’s classic story about Huckleberry Finn, Huck steals a pie that’s cooling in a window. Simply put in business terms, someone made the pie available for stealing, and someone else decided to steal it.
Business owners get ripped off every day in much the same way — though people are stealing a lot more than pie!
The first problem is that owners often create the opportunity through poor internal controls, inadequate employee supervision, placing too much trust in a specific employee, or failing to safeguard inventory or supplies. The second problem exists in the character of certain employees, who want for themselves what the business owner has. If they see an opportunity, they take it.
A few years ago, I did a survey, albeit unscientific, asking many of my clients and contacts if they’d ever experienced employee theft. The results astonished me.
More than 50 percent of the people I asked had experienced some form of theft, and more than 20 percent described a significant theft that had left a major impact on the business.
Some examples of employee rip-offs:
- Service-company employees using the company’s trucks and inventory to run their own side business
- Employees of an audio/visual equipment wholesaler sneaking televisions and DVDs out the side door
- Manufacturing firm employees stealing valuable scrap material worth thousands of dollars
- A partner in a construction company embezzling funds on a regular basis, eventually driving the company into bankruptcy
In each case, missing or sloppy controls within the business created the opportunity, and dishonest employees took advantage of it. Not every incidence of theft might have been stopped, but in many cases, it could have been deterred. In every case, the loss could have been minimized.No business can be made completely invulnerable to theft, but the following actions will reduce the chances that employees will steal from your business.
- Make sure you have adequate dual controls in critical areas, especially anything related to cash or valuable inventory. I once met a business owner whose accountant, a “very sweet woman,” became very friendly with the owner’s family over the years. They even spent holidays together. He was thankful she was there to handle his financial affairs.
Imagine the owner’s horror when he discovered that for more than three years she was “cooking the books” — stealing from the company to cover her gambling habit. Eventually, boxes of forged company checks were found underneath a bed at her home. Total loss: more than $500,000.The owner made two mistakes. First, he trusted one of his employees too much. Second, he didn’t have controls in place to ensure that work was being done properly. Sometimes temptation overtakes even the most trusted employee. As President Reagan once said of the Soviet Union, “Trust but verify.”
- See that safeguards exist to protect valuable items. Cash is the most obvious concern when it comes to employee theft, but assets like inventory can be just as tempting. Employees can resell inventory, use it for themselves, start their own business, etc.
A plumbing contractor who allowed his servicemen to take company trucks home at night discovered that two employees had started their own plumbing business on the side, and were slowly stealing inventory, tools and supplies to get the company going. Another individual in charge of purchasing for a large manufacturing company amassed an impressive collection of tools for his home workshop. He made a practice of purchasing an additional tool for himself whenever he sent in an order — at company expense, of course. In both cases, the owners could have prevented the thefts with some simple control measures.
- Know who has access to items people might steal. If you were to discover that an internal theft had occurred, could you easily narrow down the list of suspects? One way to safeguard against theft is to restrict the number of people with access to certain things, and require that locks be used.
If, for example, your bookkeeper’s desk holds the company checks and petty-cash box, that desk should be kept locked whenever he or she leaves the room. Valuable inventory should be kept under lock and key, with a very limited number of people having access to it. Sign-out sheets should be used.The time it takes to implement these control systems is insignificant compared to the time expended dealing with the consequences of theft.
- Determine whether adequate supervision exists for outside employees when they are away from the business. For many companies, having employees work at outside job sites is a necessary part of doing business. This arrangement offers considerable opportunity for unscrupulous employees to steal, especially if they’re unsupervised.
Are your employees on the job when they’re supposed to be? Do they take longer lunches and breaks? Are they getting the job done in a reasonable amount of time? It can be difficult to supervise off-site employees, but there are simple things that can be done. One solution is to institute a policy of random, unannounced site visits to monitor your employees’ work. Another is to track a specific employee’s time compared to others’ outside production, with the fastest worker setting the standard. For other types of theft, create a process for checking in all tools and accounting for supplies on a periodic basis. People are less likely to steal if they know they’re being watched.
- Once in awhile, shake things up. Don’t always have the same employees doing the same things. Theft often comes to light when a person stops working in his or her usual position for a few weeks and doesn’t have the opportunity to cover up any improprieties. Have a manager fill in for employees who are out sick or on vacation. Switch crews around periodically. Move managers between divisions. Enforcing mandatory vacations can be one the best tools for catching crooks.
These suggestions aren’t intended to make you paranoid about all of your employees. You should, however, be aware of areas of vulnerability within your business. Ask yourself: “If I were an employee, how could I steal from this company if I wanted to?” Take whatever steps are needed to remove opportunities and protect your company. Get those pies out of the window! Vistage Associate and speaker Laddie Blaskowski is president of BusinessTruths Consulting, Inc., based in Colorado Springs, Colo.