I was positive all my employees were honest. I always made sure they were paid first and got a little extra at Christmas. I rarely changed employees and they all became friends. I was sure that all my employees guarded the company assets as they would their own.
My longest serving and most trusted employee was managing all the home construction for the company. He had hired a number of our regular subcontractors to work on the project and a several new ones. The project was well into construction when I received an anonymous letter in my mail box at home that said this employee was awarding contracts based on kick backs to sub.
The fact that the accusation was leveled at my most trusted employee and the fact that it was anonymous led me to put the letter in my drawer and I tried to ignore it. But I did begin paying closer attention. When the employee went on vacation his assistant was doing most of his work and came to me with a question on the millwork contract. She wanted to know why we were not buying from the lowest bid.
Over the next week we discover three contracts that were not awarded to the low bidder. I then began to look harder and found an order for windows that would not fit in any of the homes we built. A drive by of the employee's home confirmed the windows were installed at his house. I found a set of tires on the company credit card that did not fit any of the company vehicles.
The Monday he returned from vacation I terminated him. A review of the contracts showed a number given to the subcontractor who was not the low bidder or had quality or paperwork problems.
After that experience we installed a system where at least two employees were involved in every purchase, we created a expense record to record all use of the company credit cards and created other systems to keep employees honest. In another article I discussed having your checkbook sent to your home and having a different employee balance the checkbook than the employee who writes the checks. All of these things are checks and balances that you should establish to protect you company by that I mean establish accounting or auditing processes to avoid fraud or errors.
Any time company money is being spent there is chance of abuse including purchasing, using credit cards and ordering materials or services. It can also include use of company materials such as cell phone or automobiles. A written policy helps establish guidelines but you also need ways of enforcing the policy or at least checking that the guidelines are being followed.
If you accept charge cards you should make sure an employee not involved in sales tracks all the charges and credits to legitimate transactions. Purchases and credits on credit cards can be particularly subject to fraudulent transactions between employees and accomplices.
Your inventory is another company asset that can be at risk. In our housing business we kept many of our materials on jobsites and not in a central warehouse so it was harder to keep track of all the parts and pieces. We believed we were losing a good deal of lumber either to trades people throwing a few extra pieces of lumber on their truck when they went home or to drive by theft.
Look into how you operate and how you can control you assets. Are there ways you can have multiple employees looking at financial transactions? You can try to look at everything that goes through your company personally but it is likely that it is impossible. Next time you talk with your accountant ask him about checks and balances that he may recommend.
Original Content copyright 2010 Thomas Robinson
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