The way that this came to my attention seems unusual now because it was so ordinary. Employees at my company pay for part of their health care expenses with an employee health savings account, supplemented by an AFLAC insurance plan.
One day my human resources manager brought me a check stub for $750 written by my controller to herself. Then another, for $825. Both had been misfiled and appeared suspicious.
I went to the controller — who had worked for my company for 10 years and had been in that position for the last two years — and asked her to explain. She said she was reimbursing herself from her HSA account for payments not covered by AFLAC. I asked why she had bypassed existing procedures, which would have required a receipt, a claim form, and HR approval. She said she wasn’t familiar with those procedures.
My office manager and I discussed the situation. How could someone claim ignorance of a procedure when that person was part of the procedure? I sent the controller home for the day — a Friday — and spent the weekend going through two years worth of records. By Sunday morning a four-inch stack of paper sat on my desk — instances of suspicious behavior or blatant pilferage — and I was on the phone with the sheriff’s office.
Mountain of Evidence
I met with the controller again, Monday morning. I said: “There are a few other things I need to ask about.” Then I started in on the pile.
Embezzlement often involves someone in a position of trust. Typically, he or she is able to tap into incoming revenue. In this case, theft was happening downstream, on the expense side of the business.
I discovered, for instance, nights when three or four full tanks of gas were purchased within hours of each other at the same gas station, using company cards. Personal packages were shipped using the company’s UPS account. Company accounts with retailers such as Staples, The Home Depot, and Verizon were abused and used to purchase barbeque grills, landscaping, gift cards, iPhones, and iPads for personal use. Dial One Windows even underwrote a family wedding, a cost of $8,500.
If someone came along and just took $90,000 out of my checking account, I’d be devastated. But when that much money disappears a little bit here and a little bit there, it’s easy not to notice.
Because I took the time to comb through the records and to consult with others, there was no arguing with the evidence. The controller agreed to pay what at the time I had calculated as the amount of money taken over the two-year period. She was then escorted from the building and will be dealing with the district attorney's office in the near future.
What I Learned
Like most owners, I prefer to think that the people who work for me can be trusted. I need to be focused on generating leads and revenue, keeping the cash flow flowing, making customers happy. It’s still hard for me to believe that someone I thought was loyal could have created, in effect, a second salary for themselves using access to company accounts.
Actually, that was my first mistake. Just because someone seems to be a loyal employee doesn’t mean they are. My second mistake was my failure to have a system of oversight for expenses, with all compliant and no exceptions. I should have, but did not, require a second signature on every company check. I should have, but did not, regularly verify company credit cards, gas card purchases, and itemized retail account payments. Minus these, someone who knows what they’re doing can quickly convert company cash into pocket money.
Today all expenditures need to be approved by appropriate managers, and all company checks require two signatures. I’ve outsourced our controller function, at less cost than what I was paying in salary and benefits. I tally the cost of this lesson at close to six figures. It’s a mistake any contractor can make, but not one I will be making again.
—Charles Gindele is the president and CEO of Dial One Window Replacement Specialists, in Orange County, Calif.
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