Pick which scenario you like best.
Option 1: A well-dressed IRS Agent walks in the front door of your business and informs you that your payroll taxes have not been paid in over a year. This is the first you’ve heard of it. You’ve been signing payroll reports and authorizing tax deposits right on schedule.
Option 2: You wake up to find a bright yellow foreclosure notice tacked to your front door. Again, you’re completely unaware. In fact, you’ve been working hard to pay down your debt more quickly.
Option 3: There’s an urgent message from your banker. She wants to know why you have a dozen bounced checks and no funds in your account.
I’m guessing you prefer “None of the above.” I’m sure each of these victims would too – if they could turn back time.
Unfortunately I’ve seen it time and time again, and the frequency seems to be increasing. All three of these are scenarios that have occurred very recently. And all of them could have been prevented.
How do you avoid becoming a victim? Do these three things.
1. Get a thorough background check on every employee that handles financial transactions. No exceptions. And if you didn’t check before you hired them, do it now. Yes, it can be a little uncomfortable and awkward. So is bankruptcy and cleaning up hot checks because your accounts were drained. If you need to, show the employee this blog post and explain that you’re just implementing a new policy, not that you suspect anything.
In all of the scenarios I’m familiar with, the theft was not the employee’s first. Most have prior convictions, and the others were strongly suspected by previous employers. In my experience, this is a crime that escalates over time. They start with small amounts of cash to see if it will be missed – and progress from there. Some of the final amount tallies are staggering. Several are in the tens of thousands, and a few exceed six digits. And all of that could have prevented with a simple background check.
For several years now, I’ve used SeSee Munson to perform background checks for all of my companies. Her records search is as thorough as I’ve ever seen, and she also conducts multiple phone interviews with references to confirm information and identify trends. If you’re in Texas, I highly recommend SeSee, and if you’re not, contact her to gain an understanding of what she does and find someone in your geographic area that can do the same thing. Her final report is an incredibly useful tool for discussing strengths and weaknesses with your future employee. Most of mine have been very thankful for the candid feedback.
2. Check your own mail – or at least a portion of it. It’s tempting to let your go-to person handle everything. After all, they’re such a great employee. And you’re swamped. You don’t want to waste your time on meaningless tasks. Consider this one insurance.
The best scenario is to have another trusted person that doesn’t have any other financial responsibilities open all the mail, log incoming payments and key correspondence and forward it to the appropriate recipient. If you only have one employee and this isn’t feasible, you can still protect yourself. Open up a PO Box and have your bank statements, credit card statements, IRS, and State correspondence mailed directly to it. (All of those organizations are familiar with this type of arrangement and can assist you with setting it up. Or contact me, and I’ll be happy to share more specific instructions.) Oh, and be sure to actually open and look at these key statement before passing them on. That’s pretty crucial.
3. Make them take vacation. Again, I know this is inconvenient. I promise you’ll prefer the temporary pain of one week to a lifetime of cleaning up your financial history. Most of these frauds require consistent manipulation to keep from being discovered. Force them to step away for a few days, and you’ll have a decent chance of exposing any deception without any additional effort.
I’d recommend at least one week per year, two if at all possible. And have another employee (or yourself) fill in to perform at least the basic duties: reading mail, making deposits, and entering customer payments in the accounting system. Be very concerned about any employee that absolutely refuses to take vacation. To me, it is a bright red warning sign.
Plus, it helps to ensure that you have good backup systems in place. What if your key employee was in a car wreck or faced a serious illness? Your business can’t grind to a halt in that scenario, so consider this good practice.
That’s it. Three simple preventions can dramatically reduce your chances of becoming a victim. Do your future self a favor. Go put them in place now.
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