When you started out with your kitchen and bath firm, your assets may have consisted of a desk in your kitchen, a laptop computer and a pickup truck with your tools in it. Over the years you may have moved to an office and added a showroom to display to customers your level of craftsmanship and wide array of products. Before long, you found that you needed help to keep up with the ever-increasing level of paperwork and details.
There are any number of threats to the assets of your business, which include break-ins, theft of tools and equipment from company vehicles and simple vandalism. But the most common losses that most businesses incur are those associated with theft and embezzlement by their own employees. This month we will look at ways to guard against such losses.
As our businesses grow, it’s pretty normal to first look to find someone to take on the administrative aspects of the job in order to allow ourselves the time to focus on managing the work in the field. When we look to hire someone, it is human nature to impute our own standards of honesty and integrity to others. This can be a grave error.
For that reason, we will look at ways to protect our businesses from the temptations and tendencies inherent in those we hire. We will also take a look at hiring practices, procedures for handling assets and some things you can do to stay attuned to what’s going on in your business.
When it comes time to add that first non-family member to your staff, there are a number of considerations. First of all, take the time to critically evaluate applicants. In most cases, you likely have waited to add this person until the situation has become critical. Be careful, however, not to jump at the first person who walks through the door. As mentioned above, we all have a tendency to believe that everyone is basically honest. Couple this with the tendency most of us have to think that we are excellent judges of character, and you have the formula for making a bad decision.
When you first begin adding employees to your organization, it may seem like overkill to create a set of elaborate hiring procedures, but eventually it will become essential to approach this task in a systematic manner. Here are some steps to look at:
A preprinted employment application should be completed by each potential employee. This form should be completed in your office at the time of the first interview in the applicant’s own handwriting. Even if the applicant has a very complete resumé, your company’s application form should be filled out.
Have the applicant return for two or three follow-up interviews with both yourself and some of your other staff members, preferably including one with which 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. This can include such questions as: “Ever have any trouble with the law?” or “Any problems with drugs or alcohol?” or “Anything we should know about you that we haven’t asked?”
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: “Would you rehire this person?”
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. Otherwise, honest people can be sorely tempted when their own financial circumstances are stressed.
Finally, there are services that will perform background checks on individuals; utilizing these should be considered.
Protecting assets involves trying to make sure that no one person is in a position to hide their activities with regard to those assets. This usually involves what is referred to as “division of responsibilities” in the area of internal control. Obviously, if you only have one employee, it is going to be difficult to divide responsibilities and you will have to retain many of those. Once there are more employees, here are some basics:
Don’t let a single individual control both sides of transactions with the company. For instance, the person who reconciles the bank account should not be the same one that prepares and signs checks. As long as practical, you, the owner, should be the primary check signer with a backup signer for emergencies.
The person who opens the mail should stamp any checks received with an endorsement to deposit only to the company’s account. This person should not be the one making deposits or reconciling the bank accounts.
The person processing invoices from suppliers for payment should not have authority to place orders with the supplier.
Purchase orders should be used for all purchases and someone other than the person issuing purchase orders should be approving the subsequent invoices for payment.
If employees are issued company credit cards, the statements should be reviewed be someone other than the person who was issued the card.
If you are paying employees by the hour, particularly if they are working in the field without supervision, you will need to set up procedures to make sure that your company is getting eight hours work for eight hours pay.
You should establish a policy regarding personal use of the internet and social media on company time.
Other Things to Think About
Have all the company mail brought to you to look through before it is distributed to the individuals and departments 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.
Monitor your company’s cash flow and financials; if something doesn’t seem to add up, investigate the situation immediately.
The honesty and integrity of the people who work for your company are key to protecting your company’s property and assets. While most people are trustworthy and honest, you need to be aware that not everyone is. ▪