A Financial Trail of Tears

No LimitsA local headline reads “Woman Pleads Guilty to Ramada Theft.” The woman referred to in the headline embezzled $80,000 from a hotel where she worked. The article goes on to say that at the time of her arrest for this crime she was also wanted by the police in Escondido, California, for embezzling $100,000 from the Pop Warner Football League. AND she was wanted by the San Diego Sheriff’s Department for embezzling $45,000 from another former employer.

In a newspaper article, we see “just the facts, ma’am.” But, let me take you behind the scenes. I have seen so many cases like this in my long career of Cash Flow Wizardry: large companies, small companies, churches, athletic booster clubs, and piggy banks. No one is immune from the threat of embezzlement. Behind the scenes, it’s always the same story: access without controls.

“We trust Mary. She’s practically a member of the family.”

“Joe handles all our finances. I never have to think about it.”

“I don’t understand all that stuff so I just hand it all over to my accountant.”

When we abdicate responsibility for anything, we place ourselves at the mercy of others. Sure, it might seem like a good idea at the time. Mary or Joe might make you feel totally comfortable with their competency and trustworthiness. They take a huge weight off your shoulders. You can focus on other things. That is exactly why embezzlements happen over and over and over again. Once you place your trust in someone and never give it another thought, con artists and embezzlers have free reign.

What does the loss of $45,000 or $80,000 or $100,000 do to a small business or a nonprofit? What would it do to your business? The losses go far beyond the initial financial losses. It cuts a swath of devastation through a business that can last for a lifetime. Once you are a victim of a swindler, you will never fully trust anyone again.

Every single one of the embezzlement cases I have seen or read about have at the core a lack of internal controls. Every. Single. One. So, it would follow that the best way to avoid your business becoming a headline would be to immediately establish some controls. What do I mean by internal controls? It’s all about checks and balances.

Let’s examine a typical scenario. Pay attention. There will be a quiz at the end. “Mary is our bookkeeper. She’s terrific! She handles all the finances so I can get out there and make the money. She writes the checks, signs them with a signature stamp, receives the money, deposits it in the bank, and reconciles the bank statement. She has a company credit card, keys to the building, and often comes in on weekends to work. She is so dedicated she won’t ever take a vacation!” Quiz Question: “How many ways can Mary steal from you?”

Now, let me add another wrinkle to the tale. Mary is innocent. It’s your maintenance guy who’s actually stealing from you. Mary will get fired because it looks like she’s the culprit. She’ll finally forgive you after years of therapy in jail.

How can you protect yourself and your innocent employees? Here are some suggestions:

  1. Never, ever abdicate your financial responsibilities. You can’t hand them off to someone else. Think about Bernie Madoff. This is exactly what happened to all his victims. You can have someone do tasks, but you always have to follow up.
  2. Be familiar enough with accounting so that you can look at numbers on your financial statements (Profit and Loss, Balance Sheet) and understand what they mean. Does anything seem “off?”
  3. Be familiar enough with your accounting system (e.g. QuickBooks) to be able to “poke around” to get information.
  4. Look at your bank and credit card statements when they come in. Look at your online banking accounts regularly.
  5. Check on your Accounts Payable report to see if there are unknown vendors listed. Ask questions.
  6. Check on your Accounts Receivable reports regularly. Are there customers who usually pay on time but now are showing as way overdue?
  7. If you have a business that gets paid in cash, do you have a system for checking how much comes in and whether it actually makes it to the bank deposit?
  8. How do you keep track of your inventory, tools, and other shiny trinkets?

By establishing a company culture of verification and vigilance, you will send the message to everyone that you are “on the ball.” It’s much harder for a con artist to steal from you if you’re keeping an eye on things. Embezzlers are looking for opportunities. When you remove those opportunities, you protect yourself from a Financial Trail of Tears.

If you’re ready to be “in the know when it comes to dough,” get the self-study course From Chaos to Control, a complete real world financial education in a box.

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