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Are Employees Stealing from You?

05/15/24

A construction company owner recently related a long and winding tale of employee theft and deception too horrible to believe.  A newly hired controller began to take over the accounting department, and quickly discovered some unusual situations. For starters, the company cell phone bill included three phones that couldn’t be identified. The controller soon found out that two bookkeepers and the office manager’s 10-year-old daughter had company cell phones without authorization. And this was just the beginning!

Some People Are Sneaky

It is amazing how sneaky, creative, and unethical people can be. The new controller continued to discover many more illegal, immoral, and improper practices that had occurred on an ongoing basis. One of the key project managers, who had been there for twenty years, was having the company pay for personal items by job, charging credit card expenses to project cost codes. The project manager then approved the personal charges as project costs, paying for his own lifestyle at the company’s expense. The controller also discovered that some unusual payments occurred during the remodel of the project manager’s home. The project manager was allocating invoices for labor, materials, and subcontractors who worked on his home to company construction projects he was responsible for.

The controller also found out that the payroll manager had used the automatic payroll deposit feature in the accounting software to advance extra money on their paycheck. The human resource records were lacking proper documentation for vacation time taken. When certain people were on vacation, no vacation time was being noted in their records. Some office staff was being paid forty hours when they regularly left early or took personal time off. One bookkeeper was even found using the company postage meter to run her mail-order eBay business. And some field foremen were using company gas cards to fill up their personal vehicles on a regular basis.

How Much Should You Trust?

The owner had prided themself in building a company where people were the number one asset. Their motto was to build a great place to work and to delegate and trust key employees’ 100 percent. This was obviously a mistake, since proper controls were not put in place. Numerous employees were aware of inappropriate actions, yet they condoned the entitled behaviors, and did not take any action or report the wrongdoing. Discovering this long- term problem was a shock to his company, the owner’s trust in his people was shattered, and many people were terminated as a result.

Do You Have a Clue?

As the owner and leader of your company, you set the vision, values, and goals, and then trust managers and employees to implement them and make it all happen. Too often, busy business owners and managers don’t want to deal with the little details required to run and manage their company. They, therefore, delegate small day-to-day business operations, including signing checks, approving contracts, insurance terms, employee benefits, and compensation packages, without proper procedures or checks and balances in place. When you trust too much, greed and entitlement can creep into the culture of your company and start to become the norm.

Some clues to watch out for can include:

  • employees remodeling homes and building pools
  • new expensive cars, trucks, boats, or R.V.’s
  • marriage difficulties and separations
  • new marriages with big weddings
  • new family pressures or children starting college
  • staff buying new or bigger homes
  • plastic surgery or makeovers
  • people leaving work early or working fewer hours
  • personal stress not related to work
  • managers not leading by example

To avoid this from happening to your company, consider implementing the following procedures:

  • Never issue company credit cards or cell phones – Try to have employees use their own cards if possible and reimburse them within 24 hours for approved charges.
  • Send all bank statements to the owner’s home – Review all cancelled checks, automatic payments, transfers, and deposits.
  • Owner signs all prime contracts, subcontracts, and change orders.
  • Two signatures or approvals required on all checks, subcontracts, purchase orders, change orders, reimbursable expense accounts, overtime, vacation requests, payroll preparation, approvals, deposits, project payables, and job costs.
  • Personnel records must be perfect – Daily timecards must include time started and time finished every day. Leaving early and arriving late must be deducted from pay.
  • Follow your employee manual to the letter.
  • No exceptions to the labor code or laws.
  • No special exceptions for long time employees, relatives, special circumstances, etc.
  • Review all job cost payables, credit card invoices, and company accounts every month.
  • Trust your people, but follow your rules

Everyone wants to trust their employees, but you must have controls to keep honest people honest. A few simple checks and balances will avoid a lot of problems, disappointments, stresses, and financial loss. Don’t wait until it’s too late to implement some of these safeguards.

Business - Commercial Real Estate Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.