How an Employee Stole $57,000 PLUS 4 Ways to Prevent This From Happening to You

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Back February, I had a meeting with my accountant and my bookkeeper to discuss the various tax returns we had to file for 2009. My accountant started asking some questions about one of my businesses. The finances for this business were handled by one of my long-term employees who left in 2009. My bookkeeper wasn’t able to answer my accountant’s questions because various bank account statements were missing.

We looked everywhere for these bank statements, but couldn’t find them. Finally, we requested the missing statements from the bank and paid to have them pulled from archives.

The statements received from the bank showed several online transfers into my employee’s personal bank account. All totaled, these transfers were in excess of $57,000.

I was obviously alarmed by this and sent my former employee an email asking why there would be over $57,000 transferred into their personal account. The response I received indicated that they weren’t able to transfer the money into the business’s savings account because it wasn’t available online. The employee indicated they transferred the money into their account and then moved it into the businesses savings account.

Makes perfect sense, right?

Needless to say, the savings account statements were missing, too. So to speed up the process, I asked this person to show me the money being transferred from their account back into the business’s savings account. A day or two later, I received copies of this person’s bank statements showing online transfers from their account into the businesses saving’s account. Thank god!

To be safe, I decided to request all of the missing saving’s account statements from the bank just to make sure everything matched up. When I finally received these statements, I couldn’t find corresponding deposits. I took all of the statements to the bank to get to the bottom of this once and for all. Believe it or not, my former employee sent me factitious statements of their account showing fake transfers into the business’s savings account. The money was never returned.

This person stole over $57,000 and then tried to cover it up. The hardest part of this is the betrayal. My wife and I felt sorry for this person and included them in holiday dinners. We sent this person on vacations at our expense. We even paid for a dinner reception after their father’s funeral.

This person was stealing money from us the entire time.

This person was recently charged with grand theft, which is a 4th degree felony and will probably do time. I share all of this with you because I’m hoping to prevent something like this from happening to you. I made a few costly mistakes, which allowed all of this to happen. Here they are:

STUPID MISTAKE #1: This employee had check signing privileges and access to the business’s online bank account.

It was very easy for this person to transfer money out of the account. For every other business I own, I’ve personally signed all of the checks. This was the one business where I delegated check signing. Never, ever delegate check signing. This includes delegating to partners and/or employees. You should sign every check personally. I know it’s not convenient. However, it’s vitally important if you’d like to keep your money!

STUPID MISTAKE #2: The bank statements for this business were mailed to the office.

As you know, I work mostly from home. This employee was the first one to get the bank statements. In fact, I never even saw them. Even worse, I didn’t have access to the business’s bank account online. I had no idea what checks were written or what money was transferred out. I completely trusted this person. Shame on me.

Believe it or not, all of the other bank statements for every other business I own, are mailed directly to my home. I’m the first person to open them and can see everything flowing through the account. You should be the first one to receive and open your bank statements. If they go to a partner or employee, you’ve opened up the opportunity for theft. Simply change the mailing address for all of your bank accounts and have them sent where you’re the first person to open them.

STUPID MISTAKE #3: Make sure all incoming money comes directly to you.

In my various businesses, money was sent to my office. This includes my rental properties, too. Tenants would mail their rent to my office or would drop it off in person. And in many cases, tenants paid their rent in cash. My employees had access to this money and could redirect it into their own accounts. Today, I have a P.O. Box and I’m the only one with a key. All incoming rents, checks and other payments are now sent to this P.O. Box and I’ve eliminated the possibility of theft.

STUPID MISTAKE #4: I felt sorry for this employee.

Every single time I’ve felt sorry for someone, I’ve been burned. This has happened with tenants in my rental properties and it has now happened in business with one of my longest, most trusted employees.

I realize this sounds terrible, but you cannot allow yourself to feel sorry for an employee, a business partner, or anyone else you do business with. You have to take emotion out of your business decisions. If you want to help other people, do so outside of your business.

Please understand that what I’ve shared with you applies to business partnerships, rental properties and your employees. Anytime your money is accessible by someone else, you have to pay attention and you have to exert control over key areas.

I’m not suggesting that you handle the bookkeeping for your business. Paying bills, preparing financial statements and balancing your checkbook is not a good use of your time. You should definitely higher a competent bookkeeper to handle these activities for you. However, you should still manually sign every check. You should have the banks statements sent directly to you. You should also remove access to all incoming checks or payments. My bookkeeper didn’t handle this one business. My employee did. I broke my own rules and suffered a significant financial loss.

Don’t read this article and think this can’t happen to you. It can and will, if you don’t set things up properly.

Please feel free to share any other theft prevention ideas in the comments to this article! Or if you’ve had something similar happen to you, tell your story and hopefully others can learn from what happened to you!

23 Comments

  • Richelle Baumgartel

    Reply Reply December 12, 2011

    This is the one of many awesome blogs that I ever read. The amount of knowledge in right here could be very impressive. This sort of article isn’t easy to find. Nice job.

  • Diedre Paulick

    Reply Reply December 12, 2011

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  • Donnell Cartland

    Reply Reply October 4, 2010

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  • Mary

    Reply Reply August 3, 2010

    Rob,
    As terrible as a story this is you outline some excellent guidelines to prevent theft in your company. Another good preventative measure you can take is by conducting background checks on your employees. This simple step can save you money and heartache down the line/ get started by checking out https://www.candidresearch.com/resources/faqs to answer any questions you might have.

  • Scott

    Reply Reply July 26, 2010

    I use two accounts, one for deposits only and another for checks only. My bookkeeper can see all online statements and transactions but is only able to write checks from the checking account.

    I am the only one who can transfer money from the deposit account to the checking account. My bookkeeper writes and signs checks each week as needed and then I make a transfer from the deposit account to the checking account to cover the checks that are written. I don’t keep any money in the checking account over what is needed to cover the checks as they are written. I review expenses before I transfer money.

    I regularly check my bank accounts online and use quickbooks online edition to keep an eye on things. All bank statements are downloaded online from the bank. I look at check images online.

    Payments are mailed to a special lockbox account setup with my bank where they are deposited directly into my account and images are scanned.

    • Rob Minton

      Reply Reply July 27, 2010

      Scott,

      Sounds like you have a pretty good system. I would suggest signing your own checks. You can have your bookkeeper prepare the checks for you, but sign them yourself. It helps you see where the money is going, before it goes. I do this with all of the other businesses I own and it has helped a lot. Thanks for sharing your systems!

      Rob

  • Elizabeth

    Reply Reply July 23, 2010

    Rob, I’m so sorry that happened to you. What a revolting feeling when you discover something doesn’t feel right. When my father died, in one state and I lived in another state, he had my cousin, an attorney, be the executor. The executor became ill and with my permission (as I was next to deal with the estate) turned it over to another atty who was a very distant relative to me. After some time I had that feeling and wrote a check from that acct. The check bounced. I became the “goat” as I had been appointed the executrix. It took my mother and me 3 years, atty fees and getting that atty disbarred to finally have some peace. The estate went to probate and another chunk of money was eaten up. I’m sure that wasn’t what my father had in mind when he set his estate in order. Oh yes, I never got the bank statements from the bank either; they went to the crooked atty. Once I demanded and received statements they looked “funny”. The bank manager was also involved in this and I found out later the atty and bank manager were involed in at least 3 other people’s estates. My lesson like yours is: sign the checks yourself. Have the control. Too bad it took time and $$$ away from you and your family.

  • andrea

    Reply Reply July 22, 2010

    I strongly recommend every business owner of any type to follow Rob’a advice. I made every single one of Rob’s mistakes. with the exception of feeling sorry for the person & I didn’t give them any special perks –and lost 3x what he did. I had known the individual for over 12yrs and still can not believe she did this to me.

    The bigger problem is this person was doing property management with my real estate company & had been for 8yrs. When her health got bad she decided to close it down which was fine because I had no interest in personally doing property mgt.

    When it closed I thought everything was fine –only to find a month later that there were landlords that had not been paid rents (for quite sometime) and tenants that were owed their security deposits.

    I am now in the middle of 3 lawsuits filed against me by Landlords, with countersuits against the individual. These suits have been going on for over a year and don’t know how many more landlords or tenants might decide to file suit–& when the existing suits will be resolved. It would have been better if she had taken my money –than other peoples money she was responsible for.

    I can tell you dealing with lawyers & lawsuits is no fun !!! You don’t want to go their and their fees just add —to the cost of what has already been stolen & trying to recover it.

    listen to Rob

    • Rob Minton

      Reply Reply July 23, 2010

      Andrea,

      I really feel for you. Having her steal your money is bad, but stealing your client’s money is ten times worse. Ultimately you lose multiple times. You lose the money she stole. The money you’ll have to pay back to clients and tenants. The money you’ll have to pay in legal fees. And finally the loss of clients due to her actions. I can only imagine how pissed off you are about this experience. I know how I feel and my situation isn’t nearly as bad as yours. Everything will work itself out over time. It always does.

      My thoughts are with you.

      Rob

  • Jack Maxwell

    Reply Reply July 22, 2010

    Great advice Rob! My grandfather was a doctor and had a lady working for him for over 30 years who my mother suspected was embezzling money from him. Whenever the lady would go on vacation, my mother would fill in, but my mother was never allowed to see the books. My mother never could conclusively determine that she was stealing from my grandfather, but it always bothered her how secretive this lady was.

    In addition, my mother-in-law is a small business tax accountant and often gets calls from companies that are struggling with cash flow only to find out from my mother-in-law that a trusted manager was robbing them blind. Many of the companies have had to go into bankruptcy due to the theft. Some never make it back out.

    I worked at a finance company prior to entering real estate. While there, a fellow employee told me that a man who occupied my office before I did had set up a false vendor and was paying himself through the false company. When he learned that someone was asking around, he left without taking any of his personal items from his office and never came back.

    You have to be vigilant and put proper controls in place. Again, great suggestions.

    • Rob Minton

      Reply Reply July 22, 2010

      Jack,

      My former employee would get very defensive anytime someone questioned them. In addition, this person was a control freak over certain things in the office. At one point, I started to think that something wasn’t right. Probably, the same feeling your mother had about the lady working for your grandfather. However, I didn’t think this person had access to any of the accounts, so I let it go. It was a big mistake. If you get the feeling that someone might be stealing from you or that something isn’t right, trust your instinct. I’m now going through the financial records of other businesses and have found even more money taken.

      The false company theft is a lot harder to catch. Have to call the number on the invoices and check into the business to make sure things are legit.

  • kelly

    Reply Reply July 22, 2010

    Leslie that’s a good point! Also, learn how to use the audit trail in quickboos! ask you accountant or bookeepper to show you!! You can see the date and time of every change made onthe check, even the name changes, dates, dollar amounts, and if and when they delete the check.

    alwasy make anyone using your quickbooks have their own login and secrect password… (you should not ever know their passwords)
    and NEVER let anyone but you know th eadmistrators password!!

  • Kevin

    Reply Reply July 22, 2010

    Rob,

    This is a very helpful article. Sorry you had to go through that. I myself am going through a similar situation with partners.

    You were right on with regards to including partners in the mix with employees. Many times people may not trust an employee but will trust a partner and THEY SHOULD NOT! Your brief mention of this should not be over looked by your readers!

    Be sure to have access to all of the accounts and that ALL partners have to sign any checks even if it does seem like it’s a bother. I learned the hard way……don’t trust anyone and CYA. It may seem ugly but it’s just business.

    Thanks for the post,

    Kevin

    • Rob Minton

      Reply Reply July 22, 2010

      Kevin,

      I agree with you 100%. You shouldn’t trust partners just because their partners. If they have the opportunity to take from the partnership, they more than likely will.

      Rob

  • greg

    Reply Reply July 22, 2010

    Rob,

    what were you thinking … you should at least write your own checks.

  • Ben

    Reply Reply July 22, 2010

    Rob, great post… good advice for all of us. “Trust in god, but tie up your camel”.

    I can really sympathize with you on #4. I agree that everytime i have done something out of “feeling sorry” I too have gotten burned or put through the ringer.

    I liken it to making decisions out of desperation, they never work out. Fair to say that making any decision out of a negative emotion is likely to end out poorly.

    Thanks again Rob.
    Ben

  • Leslie

    Reply Reply July 22, 2010

    Rob, Wow, that’s a tough lesson and you’re right the betrayal is the worst part. I must admit, though, my antennae went up when you described feeling sorry for this person and talked about paying for various things for them. It sounds as though they were being a victim and used you by playing on your sympathies. The problem with victims is that they really do feel they are owed.

    • Rob Minton

      Reply Reply July 22, 2010

      Leslie,

      You hit the nail on the head. Feeling sorry for someone is very risky. Every single time I’ve felt sorry for someone and did things for them, I’ve been burned. EVERY TIME! Apparently, I haven’t learned this lesson fully until now. Nice guys do finish last in business.

      Thanks for your comment.

      Rob

  • ellen hansen

    Reply Reply July 22, 2010

    What about electronic payments and banking? I have considered having tenants direct deposit electronically into my account. Is that not safe?

  • Sharmaine

    Reply Reply July 22, 2010

    Rob,

    I had the betrayal and am still going through everything to make sure there was no theft. When my real estate business started booming in 2003 I wished for my old assistant to “ride shotgun” with me in business. Sure enough, she called me out of the blue and I told her I needed her yesterday. She immediately resigned her other job and came on board.

    The administrative side of my business was weak and she was very strong in that area. In just two weeks, she had everything ship shape. My business boomed even more, having her there. I increased her pay after only 60 days because she was really freeing up my time and business was rolling so smoothly. Clients and colleagues alike were complimenting me on her. We made a great team. So I thought.

    I too gave her bonuses, great Christmas gifts and even gave her the down payment for her new home. I flew her to see her grandchildren and looked for ways to show my gratitude for her outstanding effort. She had been so faithful and a great employee to me during the very lean years and my other business ventures that I wanted have to have a home of her own. I wanted to make her world as comfortable as possible because of all she was doing for me and my company. It felt good to do it.

    She set up a great system for bill paying, comissions, deposits…it all worked like a finely tuned instrument. I would have trusted her with MY LIFE! Even though I still signed the checks, I took my eye off the finances and in our meetings, she would give me the rundown of how much we earned what we paid, any big expenses, etc. All well and good. I was focusing on what I am good for and leaving her to run what she is good at.

    I left for vacation and returned on a Thursday late. I had come to sign paychecks and bills. She was still at the office at 8:00. (She would often come in on Saturdays just to make sure we were ready for Monday mornings). The computer repair guy was there and I told her I’d stay with him and she could go home. She said she would stay and for me to finish out my vacation.

    She had told me that she was going back to her ex husband after 20 years and was resigning in 60 days. She was preparing an operations manual for the new person and was going to stay for two days to train her. She told me she was going to sign back over the home to me because she would never have one had it not been for me. I told her it wasn’t necessary, but if she wanted to, she could. We never reduced it to writing. I decided that I would just get the down payment back and she could have the profit to take with her to the new location.

    The next Monday morning, she was late arriving at work. I left a voice mail. I called. No answer. At 1 pm that day, I got an email saying that she was resignning effective immediately and it had a sour tone to it. I couldn’t believe it. My very first thought was that she had embezzled money becuase she was leaving abruptly. I didn’t know where to begin to look because for the past year, she had handled all the bill paying, etc. I had a deer in headlight moment. I was crushed because I didn’t think of her as an employee. I felt like she was family.

    I could not believe that I didn’t see it coming. I was so frustrated with myself that I had that high level of trust in someone who would just leave like that. And she took all of the profits from the sale of the home. Maybe that’s what it was all about. She wanted the $18k. I just felt like she would have said, I need all the money or I’ve changed my mind about repaying the downpayment money. I didn’t require her to sign the home over or to pay the money back; she offered it and I accepted, still working for a good solution for her. I don’t regret doing it, just regret that I was so caught up in work, that I ignored best practices in business.

    I was told that a person who knows how to embezzle knows how to embezzle wihtout it being detected. So far, I haven’t been able to see if any money was stolen, but the thought lingers that I wasn’t watching my own storehouse that I was busy out working to build. And it took a long time to get another assistant because of it. Not to mention papers piled up, things got missed for a while.

    But it was truly lesson learned and it showed me that even though you “think” you know a person, you really don’t. Thanks for sharing and for the heads up to be proactive with our business.
    Sharmaine

    • Rob Minton

      Reply Reply July 22, 2010

      Sharmaine,

      I can definitely feel your pain. It’s really not the loss of money that is hard to deal with because money IS replaceable. It’s the betrayal of someone you trusted and did special things for that is the hardest to swallow. It’s the B.S. they fed you while they were robbing you. This person told me how I had changed their life. Unfortunately, you can’t trust people when you run a business. You have to pay attention, question everything and watch the MONEY! The detective investigating this theft told me how an employee of his father in-law stole over $500,000. She stopped paying the payroll taxes and took the money instead. Next she shredded all of the IRS deficiency notices as they came into the business. She received the mail, so she could control what the business owner received. Now he has to pay the back taxes, penalties and late fees. Horrifying.

      From what you’ve shared, I would go through your bank records closely. I’ll bet there is more for you to find. You can get each monthly statement directly from the bank’s archives and see every transaction out of the account. Make sure you look for “fake” contractor payments. Some people setup fake businesses and then make payments out of your account to these fake businesses. The expenses look valid, but they’re stealing from you.

      Best of luck to you!

      Rob

  • Jerry

    Reply Reply July 22, 2010

    Rob, I feel your pain. Been there, done that. Rule #1 from DK: Never hand over the checkbook. I heeded that AFTER it’d happened to me. This is bad, but think about all the TIME employees can steal from you. To me, that’s even worse. No proving it. And they have no remorse as they feel it’s oftentimes justified. Argh.

    I know sharing your story will help others. Too bad for this employee. They just don’t get it.

    • Rob Minton

      Reply Reply July 22, 2010

      Jerry,

      Believe it or not, I followed Kennedy’s advice with every other business. For some reason, I never had the bank statements sent to my home for this buiness. One simple change would have prevented all of this from happening. I think you’re right about employees stealing time. I shudder thinking about it.

      Rob

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