Are you a Loser?
No we are not asking whether you are successful or not, but whether in operating your business you are losing money. No, not making losses, but being ripped off by your employees or business partners.
Often the business will lose about as much as it can bear with the owner struggling to make a reasonable wage. Somehow the perpetrators seem to know how to pluck the goose enough to hurt it but not kill it.
In recent years we have dealt with cash being taken from tills and company income diverted to other bank accounts.
Everyone understands cash going from a till. With modern systems it should not happen, but it does. We have dealt with a company that we estimate lost between $550,000 and $600,000 in a 17 month period to two employees. Both used the same method – entered a sale, collected the money, cancelled the transaction and pocketed the money, all in front of cameras that recorded their actions (which nobody monitored). Discovered when a new office person looked at the monitor while on a coffee break. The seven day stored data revealing the second offender. Unfortunately, the till software was flawed as it did not record cancelled transactions.
We quantified the losses by comparing the cash to credit card sales ratios of these two people compared with five others. We had to assume they were honest. Whilst the ratios of cash to credit card sales was quite erratic on a daily basis, over a long period the ratios for the honest staff were in the range of 35%-37% whereas for the two offenders it was 28.6% and 26.9%.
Cash to credit card sales will vary depending on the business. A restaurant will have less cash than a takeaway bar. The ratio may also vary from suburb to suburb. The owner must find the ratio for the business and monitor any changes. A change in the ratio can indicate a problem, however, it may be difficult to prove the amount lost.
This same process was used by a franchisor to assess the amount of cash not banked by a franchisee to determine the franchise and advertising levy lost. The franchisor who took action to cancel the franchise at a huge cost to the franchisee.
Often the opportunity is given to an employee in smaller organisations where segregation of duties cannot occur. An owner / operator can provide an opportunity for theft simply by putting too much trust in an employee. In one situation we have dealt where a theft occurred, one employee was putting cheques in one “fast deposit” bag and cash in another. Another employee was dropping the bags at the bank. So there was a question about who stole the cash. The cash was banked in accordance with the instruction in the fast deposit bag paying it to the employee’s account. This employee also had access to the bank account and was able to change the account into which EftPos transactions were paid. The cost to the company was $360,000 over 30 months.
The risk arises out of size. Bill Gates has made clerical work so efficient that many businesses need only one person to do all the clerical work – wages, accounts payable & receivable and manage the bank account. An unscrupulous employee can spot an opportunity!
What can be done?
Be vigilant! At an absolute minimum, do not cede any control of the bank account – make sure all payments are examined and processed by you.
Cash is generally the most desirable asset for a thief. Put systems in place to monitor what is going on at the till. Ideally the cashier should log in and log out so the system knows who has processed what transactions.
Don’t ignore small things. Cash being $0.50 less than the till register for the day could be an error in change. It could be five cancelled sales of $19.90 where the employee has received a $20.00 note, given change of $0.10 and cancelled the sale, a loss of $99.50. Of course it could be one $9.50 sale.
If there are cash discrepancies try to isolate them to a particular person?
The owner should always do the end of day cash-up and prepare the funds for banking.
Don’t hesitate to put a camera in. The loss of as little as $50.00 per day will pay for a camera in a little over a week. The loss of $50.00 per day is conservatively $7,500 after tax profit. It is generally accepted that the thief will get more ambitious or his or her “needs” become greater and the losses become greater or more frequent.
If you become aware of a defalcation by an employee, conceal your anger, don’t fly off the handle. Speak first to your lawyer. We would not want you having to defend your position in an employment dispute. Having to pay the errant employee to leave is salt in the wound.