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“Trust but verify!” – Horatio Caine on TV’s CSI Miami

Over the weekend, business columnist Abel Harding authored a great post on the Florida Times-Union’s website at Jacksonville.com. It resonated with me because all our dealerships are small businesses and, according to the National Federation of Independent Businesses, that makes us 15 times more likely to be defrauded by employees than non-employees.


Harding went on to cite a few examples ranging from a firm’s vice president who schemed to pocket up to $69,725.00 to a sheriff’s department dispatcher forging medical notes to get $500 worth of paid time off. Of course, there are always the news-making big schemes, like the controller of a local non-profit health care organization who, over seven years, moved $690,000 into her own purse! Regardless of the amounts, thefts from the inside are a serious possibility for small businesses.

In fact, a whopping 30 percent of business failures are related to employee theft or fraud, says the U.S. Department of Commerce. As Harding reports, employee thefts fall into three categories: larceny (stealing property or cash); skimming (embezzling cash before it makes it on the books); and fraudulent disbursements (billing and payroll schemes).

Admittedly, it may be uncomfortable to think about, especially in the context of long-term employees. But, thefts are most often perpetrated by someone least suspected – a “trusted” long-term employee. Identifying theft and fraud can be critically important to a small business – perhaps even survival. Just as important, if not more so, is preventing it before it happens. Here are some suggestions that Harding gleaned from experts:

• Perform background checks on every perspective employee. While this won’t help with current employees, it could eliminate future problems.
• Supervise your employees. Every staff member should have some form of supervision and oversight regardless of how long they’ve been with the dealership. Typically, thefts go undetected for at least three years. For example, Harding cites the case of a 14-year bookkeeper who was arrested for heisting more than a quarter-million dollars.
• Make theft difficult. Suggestions include actions like having more than one person monitoring the company’s books as well as unannounced inventories (identifying material or equipment thefts.) Also, all bank statements should be reviewed monthly as should all company credit card bills. Though more difficult, rotate the duties of employees where possible.
• Forbid it. The policy of every dealership should be: Theft of any kind is grounds for immediate termination and potential criminal charges. Put it in writing (employee handbook) and make sure everyone knows it.

 For all our dealerships, this is worth consideration.

Comments

3 comments on ““Trust but verify!” – Horatio Caine on TV’s CSI Miami

  1. AnonymousBob

    Most important:
    Know, understand, and read your financials on a regular basis. Don’t leave it up to your Controller, your CPA, or your partner. As painful, and boring, as it may seem, your livelihood depends on you knowing your finances.

  2. Cjohnbuy

    Good topic to be thinking about Norm. Over the years I have known several dealerships that were defrauded. The one thing that could have saved them from fraud was. owners should go to the mail box at least once a week, on different days and get the mail and open it and understand things like bank statements . The four fradulant situations were with trusted employes. Three were bookeepers and one was a sales manager. Two dealeships had to go bankrupt. The other two strggled for a while.

  3. korn

    Actually, Norm, that quote is from President Reagan and following stalled SALT talks with the Soviets in (I believe) Iceland…

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