There are any number of threats to the assets of your kitchen and bath firm, which can include break-ins, fire, flooding, theft of tools and equipment from company vehicles and simple vandalism. But the most common losses 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, we hire people to help us conduct our administrative tasks – including the bookkeeping function. In fact, these tend to be among the first tasks delegated to others when a firm starts to grow.
It’s human nature to impute our own ethics and values to others. When interviewing potential employees, this can be a grave error. In this column, we will look at some of the ways to protect our businesses from the temptations and tendencies that may be present in those we hire. We will also look at hiring practices, procedures for handling assets and some things you can do to stay tuned to what is going on in your business.
When it comes time to add that first non-family staff member, there are a number of things that should be considered and implemented. First, it’s not uncommon to have waited a little longer than we should have, so there’s often an urgency to get someone in place. This can cause us to be less careful with our screening than we should be.
Second, as mentioned above, we all tend to think everyone is basically honest. Couple this with our own feeling 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.
With the addition of this very first employee, there should be a set of hiring procedures set up and followed. The following is a list of some of the things that should be included into this process:
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 resume, 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 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. Include such questions as: “Have you ever had any trouble with the law?” and “Is there 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.
POLICIES & PROCEDURES
Your company is probably the most vulnerable to employee theft and fraud when you have only one, or few, employees and it is necessary for them to handle several areas of responsibility. Once there are several employees, you’re in a position to institute more of what are known as internal control procedures. To start with, divide responsibilities. 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 it’s practical, you, the owner, should be the primary check signer with a backup signer for emergencies.