There are many things that happen in the course of business that can result in financial loss. These include theft of equipment from company vehicles, break-ins to offices or simple vandalism. But by far the most common such loss that occurs to businesses, particularly small businesses, is from employee theft and embezzlement. Here are some of the things that can be done to help reduce the chances of that happening.
As our kitchen and bath firm grows, we hire people to take on some of the things that we can no longer handle ourselves. While our businesses were small, we personally opened the mail, looked at every invoice and signed every check, in addition to estimating projects, designing and selling them to our customers. So, the first person hired is usually someone to take over some of the administrative functions.
There is a natural tendency for us to assume that the people we hire are honest and trustworthy; sadly, this is not always the case. This month, we will look at some of the ways to protect our business from the temptations and tendencies that may be present in those we hire. We will also review hiring practices, procedures for handling assets and some things you can do to stay tuned to what’s going on in your business.
Hire the Right People
In the kitchen and bath field, as with many small businesses, there is a tendency not to take the hiring process as seriously as we should. Often, it is not until the need is particularly urgent that we start our search, especially if a critical employee leaves unexpectedly.
There are a number of factors that cause us to be less discerning than we should be when adding staff members to our company. First, there is a tendency to want to believe that everyone is honest. The truth is that most people are honest most of the time, but not everyone is honest all of the time. Couple this with our own feelings that we are excellent judges of character, capable of correctly evaluating an individual after a brief interview, and we have a prescription for making a quick and potentially dangerous decision.
For that reason, it’s important to follow a set routine for your hiring process. No matter how urgent replacing or adding staff, don’t short circuit this process. Some of the elements that should go into this process include the following:
Have every potential employee complete an application form, in their own handwriting. The form should ask for all relevant information about the employee.
Have the potential employee return for two or three follow-up interviews with both yourself and some of your other staff members, preferably including one with whom the new employee will work directly.
Ask the tough questions, even though the wrong answer will be obvious, and a less than truthful answer can be expected regardless of the facts. Such questions as: “Ever have any trouble with the law?”; “Any problems with drugs or alcohol?”; “Anything we should know about you that we haven’t asked?”; etc.
Check references carefully, including personal references and former employers. You will find many former employers are reluctant to discuss any problems that they may have had with an employee for fear of legal repercussions. Here, a telling question is: “Is this person eligible to be rehired?”
Particularly if the potential employee will be handling cash or bank accounts, you should look carefully at the person’s financial situation, i.e. bankruptcies, etc.
Finally, consider using a service to perform background checks.
While this may sound like a subject more applicable to a large organization, it is equally important to any organization with more than two employees. As your company grows, it becomes necessary to delegate some of the more critical functions you have been performing. In order to protect your assets, it’s important to understand that this is more involved than just turning over some of the things you do not want to do. Here are some of the basics of internal control:
Division of Responsibilities
Try to arrange responsibilities in such a way that it would require two individuals to collude in order to misappropriate any company assets. For instance, the person who reconciles the bank account should not be the same one who prepares and signs checks.
All checks made out to the company should be stamped with a “restrictive endorsement,” which requires deposit only to the company’s bank account.
The person processing invoices from suppliers for payment should not have authority to place orders with the supplier.
Take care in designating who has the authority to make purchases on behalf of the firm.
While it’s convenient to provide employees with credit cards for gas purchases or supplies at the local box store, such cards are an opportunity for abuse. Have employees turn in all receipts to the bookkeeper and make sure they are matched up to all purchases billed to the company.
If employees are issued credit cards, make sure that each such card is associated with a particular individual and that purchases on that card are reviewed for propriety.
All purchases on accounts from suppliers should require a signed purchase order, which is later matched up to the invoice from that supplier.
Time is money
If you’re paying employees by the hour, particularly if they are working in the field without supervision, set up procedures to make sure that your company is getting eight hours’ work for eight hours’ pay.
Some Common Sense Tips
As the owner of a small business, there are several steps and actions that you can take to protect your assets. Here are some things to think about:
Try to avoid situations where an employee will be tempted to cheat or steal from the company. Otherwise honest people will sometimes give in to temptation.
Have all the company mail brought to you to look through before it’s distributed within the company. This is a really good way to keep a pulse on your company and pick up on complaints or suspicious billing from suppliers.
Make sure that all employees take regular vacations and that someone takes over their work while they are gone. ▪