How to spot an embezzler

by Philip Toppino

How do astronomers spot a black hole if they can’t see it?  The trick is since a black hole exerts enormous gravity on nearby objects, you look to see its effects on surrounding matter. That is how you spot an embezzler.

This topic is a tough one folks because it will come at you from the blind side and hit like a ton of bricks. When it comes to money, it’s not possible to rely on human nature to do the “right thing” as most people act different when no one is looking. Ronald Regan said, “trust but verify.”

There’s a saying, “what would you do if you knew you could not fail?”  I’ll modify that to, “what would you do if you could not get caught?”  I would guess that’s what embezzlers think. It will not be easy and it will not be obvious. I’ll be the first to tell you, if someone wants to steal a small amount of money from you one time, it will be nearly impossible to catch them.

Your Friend

Criminals think they will never get caught and that’s why they do it—again and again, however my goal today is to educate you that the person most likely to steal/embezzle from you is not a stranger but more a trusted employee who is “your friend.” Also, what situations and behavior to look for when you suspect someone may be stealing money from your company.

People and situations to look out for:

1)    Those employed by you but not reaping the benefits as a partner of your company. You already pay them well to do their job but secretly they will likely never be satisfied. You could not ever pay them enough; they simply continue to want more. They are the talkers who want to be a partner but aren’t willing to do what it takes to become one.

2)    Those employed by you who are on the front line, directly with the customers. Typically those are the ones taking in the money and making the sales. Cash is king and in a cash business it’s too tempting for most people.

3)    Those who complain about not making enough money for months then suddenly, stop and things apparently are ok.

4)    When you have an employee agreement based on performance, and either the business isn’t performing as projected or the employee wants to renegotiate their agreement early because they don’t like what they signed.

5)    Family employees. You must treat them like anyone else regarding employee non-compete contracts and personal guarantees on loans. If you take on a family member as a partner or employee be prepared for the crap to hit the fan and the possibility of never speaking with them again. Embezzlers don’t simply fit the profile of an accountant, or money handler in your business. They can be your business partner who would not own a majority of the company and would likely not be the guarantor on any business loans or lines of credit. They take out a business loan in the name of the business and simply walk away with the cash, leaving you to hold the bag, debt and risk. These things happen folks, and from those whom you least expect. I took this example from my brother in law, who wasn’t performing in our business so he went against his word and left owing the business over $20,000, over five years ago.

6)    People who deal in cash, cash, cash. It’s nearly impossible to trace and even more impossible to get any back once it’s stolen from you. You should handle cash personally or set up a “casino style” system. (A combination of cameras and accountability.)

7)    Do a random audit of your books. Keep a second CPA for random quick reviews of specific time periods for random audits. Maybe you will find the second CPA is better than the first and make a switch. The competition will also help you regardless.

8)    I strongly recommend mystery shoppers, www.mystery-shoppers.com is the company we have used for years with great success. There are many reasons to use a company such as this one.

1. Autonomous reporting from a paid third party is almost certain to be more direct and honest. You will not get that feedback from any other source. Customers always have another motive and the cost is nominal to use them. Approximately $40 a visit, plus the cost of whatever package you wish for them to purchase.
2. It is a random visit and no one knows when they are coming so it keeps everyone on their best behavior.
3. Invaluable feedback. I’ll list this again because I feel it’s that important. You can request very specific questions be answered from your mystery shopper and can tailor your report to what you are looking to accomplish.

9)    Do not loan any employee money or allow them to have access to cash without solid checks and balances. Even the ones who have been working with you for 10 years. If you start to notice personal problems, your radar better go up. We had an administrator who was a great employee, and customers loved her. Her live in boyfriend became physically abusive so she left their apartment owing money on furniture, rent and credit card bills. It started to affect her performance at work so since she was a long term employee, I offered to help her get back on her feet and loan her the money to pay off her high interest rate credit card bills. We had a high level employee, with high functioning bi-polar disorder, taking medication and whose parents unbeknownst had also just lost their jobs. She decided to borrow the money, give the money to her parents and move back home with them. Six months later she has now filed bankruptcy and somehow it’s entirely my fault. What she should have done, was pay off her bills with the money she borrowed, continue to work for me with job security and have her parents move in with her.

Now both lives are ruined as the parents, with no job and elderly will likely loose their home anyway?  In the end with this example of an employee stealing—as a business who’s lost tens of thousands of dollars, we are going make the money back in less than a year by absorbing the previous responsibility and eliminating her position. The key in this personal story is everyone should be replaceable. Even your best employee.

Your Limitations

Know your limitations—if your employee is better at running the business than you, you had best make them a partner or put them on a high incentive program that spells out the future. You are setting yourself up to fail if you think high caliber employees want to continue to burn the candle at both ends and ultimately not have ownership. You can’t be everywhere at once and employees who embezzle typically feel like you owe them something.

You must have a zero tolerance policy with employees who show these tell tale signs. These same employees will likely continue to make poor decisions, no matter how many opportunities you give them. And let’s face it, people with addictive personalities, drug or alcohol issues or gambling addicts or general self-destructive behavior are not folks you want in your organization. A majority of them are so self-centered, they will destroy their lives, blame anyone but themselves and anyone stupid enough to stay around them deserves whatever they get. No matter how sorry an addict is, if you keep them around, in the end it’s your fault and you have no one else to blame but yourself for their actions.

No Crystal Ball

There isn’t a crystal ball but the harder you work, the luckier you get. The more time you put into your business and build relationships with your employees the faster you will spot an embezzler and the less chance an embezzler will be able to take advantage of your business.

Most embezzlers, regardless of whether you’ve paid them well and treated them like family, will rationalize their criminal behavior to make their actions seem justified in their own mind. Once the money is embezzled, consider it gone. The best you can hope for is to file a claim with your insurance company, for damages under your policy and hope to bring the criminals to justice. We gathered enough evidence on our embezzler to get a $10,000 check from our insurance policy.

Philip Toppino is the owner of Elite Car Wash and Elite Lube in Clermont, Fla. He offers consulting services for the professional car wash market and specializes in real estate development. You can reach him at ptoppino@gmail.com. Visit his Web sites at www.toppino.com or www.elitecarwash.com for more information.