Monday, July 9, 2012

Are your employees stealing from you?

You can't be everywhere all the time - you can't see everything. So how do you protect yourself from an employee who may feel entitled to take a little extra here and there (or a lot).

Several years ago one of my receptionists stole several thousand dollars from the business. It went on for several months. I should have found it sooner, but I got behind on my paperwork so it went undetected far too long.

In my case, the theft was discovered when I finally got around to reconciling 6 months of bank statements. The employee was just shorting the deposit so if my report said the deposit should be $500, she was depositing $300. Not a sophisticated scam and it should have been found in the first month. But like I said...I got a little behind (I hate doing bank reconciliations!).

That's just one example of many, many ways employees can rip you off. Here are a few more:

  • Cancel an appointment off the book and pocket the cash
  • Change the price on a service or product and pocket the difference (like adding a fake coupon or discount after the client has already paid)
  • Just take a little out of the drawer every day...$5 or $10 a day adds up over time
  • Employees with responsibility to pay bills can pay fake invoices so the payment is actually going to them or a family member (very common type of bookkeeper theft)
  • Change the breakdown of credit card charges so more of it shows up as tip but the total charged by the customer stays the same (this scam cost a local restaurant $40,000)
  • Time clock fraud for hourly employees - charging for hours not worked
  • Stealing retail or backbar products
  • Selling gift cards for less than face value
How can you protect yourself? Mutual trust is a critical part of the employer/employee relationship. You don't want your team to think you don't trust them, but at the same time it's important that you make sure the opportunities are not there.

Here are some of the safeguards I take:
  • Technology is your friend. My salon management system (Millennium) has an alert system. The system emails me when someone clocks in early or late, a product or service is discounted, certain payment methods are used (like "other"), a gift card is sold for less than face value, or a transaction is voided. These alerts don't find everything, but they keep me in the know. When I see a haircut come through at $0, sometimes I ask about it - not every time - just often enough that people know I see things.
  • Balance the checkbook! In my salon, I am the only one that writes checks and I now balance the bank statement regularly. I still hate the task, but I learned my lesson (my very expensive lesson). The same goes for company credit cards - my salon manager has the number and makes purchases with it, but I pay the bill and see all the charges.
  • Watch for patterns if you do see something fishy. If deposits are short $5 or $10 occasionally, check to see if it's the same person closing on those nights. Don't accuse them of anything. Just say you've noticed the deposit has been short and please be more careful when preparing it. Same goes with drawer shortages.
  • There's a very important concept in fraud prevention known as "segregation of duties." Basically it means you want to break up responsibilities for certain things among different people so it's impossible for one person acting alone to perpetuate a fraud. It builds checks and balances into the system so it would take two or more people acting together. A couple of the biggest things that shouldn't go to the same person (unless it's the owner)
    • Making daily deposits and reconciling the bank statement
    • Writing checks and reconciling the bank statement
  • Segregation of duties makes sense for partners, too. If one partner pays the bills and handles the finances, the other partner should do the bank reconciliation.
  • Technology also helps in tracking inventory, both retail and professional. Computerize your inventory and make regular counts. If your actual counts consistently show that you have less product than the computer thinks you do, start digging.
  • For professional products, require the technicians to save the empties for purposes of re-ordering. In our salon, we have a box in the dispensary where they deposit empty color bottles, etc. Once a week the salon manager takes these items out of our computerized inventory and re-orders. If product walks off, the computer will still have it in the count and a discrepancy will arise.
  • Know your payroll. Honestly if someone is going to scam me for a half hour of pay I don't know that I would catch it. We do check the time weekly to make sure people clocked out properly for lunches and if they left early, they were clocked out at the time they left, not the time they were scheduled to leave. I know what my payroll usually runs, so I would catch a big fraud, but a little one would probably get by me. For this I rely a great deal on my managers. We've had situations in the past where employees who were still clocked in were doing each other's hair to go out on a Saturday night. Their manager sat them down and told them that although they probably didn't do it on purpose, being clocked in while doing personal business is against company policy and is in effect stealing from the company and won't be tolerated. They didn't do it again.
  • Know what's going on in your employee's lives. Many people that would not normally steal end up "borrowing" with the intent to put it back later. If an employee is under great financial strain, they are a greater risk.
Have you been the victim of a financial fraud in your business? Leave a comment and share your story.


  1. They say the best lessons are learned the hard way, but it's still too bad that you had to go through that. While you want to show your employees that you trust them completely, it still pays to be careful in some aspects. I hope that’s the last ordeal you’ve got to deal with your employees. Thanks for sharing your story!

    Betty Rose @ Phenix Investigations, Inc.

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