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