In the 29 years I’ve been consulting with and coaching contractors, one of the most difficult things I’ve ever had to do was tell two partners that a third partner was stealing, at least $50,000 per year, from their business. It probably was more than that, however, I didn’t want to dig any further.

Theft is heart wrenching. You work hard and you never expect people to steal from you. When they do, your first reaction is disbelief, then sadness.

There are three major ways employees steal from your company: money, materials and time. Most employees don’t think twice about surfing the web, excessive smoking breaks, personal phone calls or texting on company time. In fact, most small business owners accept and pay for a small amount of personal time as part of an employee’s day.

For now, we’ll focus on time and material theft, which is less pervasive but can be much more damaging to your company’s cash flow.

Money & Material

Why do employees steal money and material?

There are a few — I call them the 1 percent — who are the professional embezzlers. Their goal in life is to see how they can creatively steal from your company. And they probably don’t need the money.

One of my clients had an employee steal $6,000 in cash. He was shocked. She was the last person he ever thought would steal. She didn’t need the money. She had been with the company for many years, showed up on time, did her job accurately and on time, was willing to work overtime when necessary and, from his perspective, was a good employee.

Remember, the job of a good embezzler is to become the trusted bookkeeper.

Some people steal because of need. These are part of the 99 percent who are usually honest. Something has happened in their life (divorce, sickness, death) and they need money. They stop thinking rationally and get emotional.

Then they do things that they never would do when thinking rationally. They steal from your company. They don’t get caught.

Then it’s easier to steal the second, third or fourth time and the pattern is set. You put procedures in place to keep these usually honest people honest, so it makes it difficult to steal.

Many years ago, a client had a bookkeeper who’d been with the company about three years. She was accurate and produced the financial statements on time each month. During her employment, she went through a nasty divorce. Her attorney told her that if she didn’t give him $3,000 within a week, he was dropping her case.

She didn’t have $3,000, so she forged a check thinking, “I get the bank statements and I can simply pull the check out before I balance the checkbook. No one will ever see it.”

The owner of the company got a call from his banker asking him if he knew Attorney X. The owner said no. The banker said he had a check written to this attorney with a signature that looked odd. The owner raced to the bank to get the check.

He confronted the bookkeeper, who denied it at first, then broke down crying and admitted she’d forged the check.

His comment to her: “Why didn’t you just come to us? You know we loan money to our employees, because you take the repayments out of their checks each week.”

Because she was thinking emotionally rather than rationally, she spent three years in jail.

Preventive Measures

There are two procedures to put in place to help this from happening at your company. First, your bookkeeper should never have check signing authority (unless your bookkeeper is your spouse and owns part of the business).

If the bookkeeper in this real life story had check signing authority, it would’ve been more difficult to prosecute her because, with check signing authority, you’ve given that bookkeeper the authority to write any check they want to write. In this case, she didn’t have check signing authority so it was theft and much easier to prosecute.

The second procedure is to send your bank statements home. If the owner had received the statement at home, the bookkeeper would’ve known he’d see the check first and therefore be less likely to forge a check.

Sending your bank statements home lets you see all of the check pictures before anyone else. You can make sure the checks are correct and that your signature is on all checks as well as be notified of bounced deposits, late loan payments and other banking issues.

Over the next few months I will write about other theft issues and the procedures to put in place to keep the honest people honest.