Thursday, July 23, 2015

Guard Against Employee Theft: The Fake Employee Trick

The Fake Employee Trick

Watch out for the fake employee trick.  Business owners know that embezzlement and theft are growing problems in the business world.  Here is an example of a method used to steal from you. A manager hires someone they know and puts them on the payroll but the person does not actually do any work for you.  This could be a friend or family member and it could easily be costing you money over a period of years.

How to catch the fake employee trick

So how can you catch this trick and more importantly how can you create an environment that discourages this and other deceptive practices.  To catch this trick and others make sure you as the owner check all the bank and credit card statements personally.  Check for unauthorized payments and make sure you are familiar with all the vendors and employees that are getting paid.

Second, talk to hiring managers about the employees they hire.  Do a regular review with them asking who their employees are and what they do.  Even ask when they are scheduled to work and make sure you regularly get a copy of the schedule.  Then every so often actually stop in to check to make sure the people scheduled to work are actually there and working.  One of my clients has cameras setup in his business locations so he can even monitor them remotely.

Create an Environment That Discourages Theft

The point here is to actually check up on what is going on and make sure everyone knows you are checking.  This is how you create an environment that discourages fraudulent practices.  My client with the video will occasionally call and ask the managers about something he notices on the video.  This lets the managers and everyone else know that he watches and they never know when.

Also, reviewing financial reports by comparing expenses related to sales, the prior period and the same period last year can help you spot things that are not right. Then in your investigation you can often find fraudulent expenditures like fake employees.  To make this even more effective develop detailed budgets for each of your locations, departments and job types and carefully review any variances.  This will help you as the business owner to have an intimate knowledge of your business.

Doing What You Don't Want to Bother With Leads to Success

Avoid getting complacent and just assuming everything is fine.  In addition, really get to know your managers and key employees and develop relationships with them.  It is harder to steal from someone you like but it still happens.  In many cases it takes more than one person to pull off a fraud and if you know your employees and have regular conversations with them it makes conspiracy more difficult.  Think about what a manager would be thinking if you regularly to talk to their key employees.  If he hires a fake employee he will wonder if you are asking his key employees about this new hire.  It really helps to create an environment where temptation to commit a fraud is minimized.

These are just a few tips to keep from getting robbed by your employees.  At the same time being aware of all the details in your operation will help you to manage and make informed strategic business decisions.  As you know "the devil is the details".  Additionally success means doing things that other won't do and that you really don't like to do.  Think of this as an investment in your business.

While this is specifically about the fake employee trick the principles outlined here will help you catch and avoid many other fraudulent activities and help give your employees incentive to give your their best.  Keep in mind that a big part of avoiding fraud is to let everyone know you are keeping an eye on things.  This really takes away temptation that can overtake even a honest person in the right circumstances.

How The CPA Superhero Can Help You

My most successful clients use me to help them monitor and review their business activities/results.  I would be happy to do so for you also. As I mentioned above it will help to discourage theft and also help you manage your business and identify problems and opportunities.

The CPA Superhero wants to help you to succeed in business, life, and in retirement.  While my main business is preparing tax returns, I also work with clients to setup accounting systems to start, manage and develop their business(es) and develop and implement a financial plan. Contact me using my information below to schedule a free introductory consultation up to a half hour. 

Jeff Haywood, CPA

The CPA Superhero

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My posts contain general information that does not fit every situation, they are not all inclusive, and as always for your tax situation everything "depends on facts and circumstances."  In addition, the information/IRS requirements are always subject to change.  So call me to talk about your specific facts and circumstances and what you want to accomplish.