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.
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.
You’ll also need to look at how you handle purchasing authority at your firm. Consider the following:
While it’s convenient to provide employees with credit cards for gas purchases and materials at the local box store, such cards are an opportunity for abuse. Have employees turn in all receipts for such purchases to your accounting department and have them match them to the bills from these companies.
Make sure you are clear with all employees that have such credit privileges what things are and are not approved purchases. For instance, is it okay to charge a new saw to the company? How about saw blades or nails? Likewise, is it okay to charge gas if the vehicle is being used for personal use? Clarify all of this up front and you will have fewer issues with abuse caused by confusion about what is/is not appropriate.
If the company provides cell phones for employees, make sure that you have a policy in place for what appropriate uses of phones are. Again, someone other than one of the users should be reviewing the phone bills to watch for excessive use and unauthorized calls.
Next, recognize that time is also money. 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 of work for eight hours of pay.
You should establish a policy regarding personal use of the Internet and social media on company time as well.
Here are several other considerations worth noting:
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
Ultimately, the honesty and integrity of your employees is the most important element in protecting company assets. This makes that hiring decision all the more important.