When I asked Eric de Jong, owner of Diamond Environmental Services in San Marcos, Calif., if it was OK to tell his story in PRO magazine, he said, "It's embarrassing, but people need to know. Ultimately it's going to make everyone better."
The story de Jong has to tell is one probably as old as commerce itself ... an employee wrongfully takes something that belongs to an employer. But too often it takes being a victim for a small business owner to sit up and take notice. De Jong, who recently learned an employee embezzled $60,000 from his portable sanitation company, doesn't want you to wait until it happens to you. He wants other PROs to learn from what happened to him.
How it Happened
De Jong says a long-term employee for Diamond Environmental Services handling the accounts payable was embezzling money for the past year-and-a-half or two years.
"She was purchasing office supplies for the company at stores like Staples or Office Depot and then also purchasing gift cards at the counter and loading them up with $200 to $500 at a time and keeping those for herself," de Jong says.
That same employee paid the credit card bills via telephone, so no one else would see the statements.
"She'd also pay our Nextel (wireless) bill and pay her own bill right along with it," de Jong says. "Over a long period of time, these things
added up."
The fraud department of one of the stores where the activity was occurring eventually notified the office manager at Diamond.
"They noticed we were buying a lot of gift cards over the counter," de Jong says. "So we went back and started looking and noticed purchases were not classified how they should have been. These card purchases were mislabeled as parts and supplies. It was a well thought-out process."
And that's what was so disheartening to de Jong, his office manager and Diamond's 150 employees. A person they had known and trusted for years had committed this crime.
"She was a good employee," de Jong says. "This came as a total shock to me."
Tips for Avoiding Employee Fraud
Office procedures are changing at Diamond Environmental Services because of the embezzlement incident. Here are a few tips de Jong offers other PROs for preventing fraud:
1. Limit the number of different credit cards issued in your company's name. Credit card offers are hard to refuse, and de Jong says he kept saying yes to them because he thought it would be a benefit to the company to rack up airline miles and other rewards for using multiple credit cards.
"We got stung hard because someone took one of those credit cards we probably really didn't need and used it against us," he says. "We will now use one card."
2. Separate duties between employees. The person who is paying the bills should not be allowed to buy anything, de Jong says.
3. Be observant. Make a mental note of changes in an employee's lifestyle. Things like a divorce or a serious illness in the family may make a person feel desperate for money and tempted to skim from company funds. Often embezzlers tell themselves it's "a loan" they'll pay back, but then it snowballs out of control. Also be observant if an employee seems to have a gambling problem or drug addiction. Observing doesn't mean accusing, of course. But if someone or something seems a little off, keep an eye on the books. Even small things can signal trouble, de Jong says. For example, if you know how much an employee earns and wonder how they can afford to go out for pricy lunches and drink Starbucks coffees every day, something might be amiss.
More Steps to Avoid Fraud
• Dump the stamp. Sign checks personally, rather than having a signature stamp lying around.
• Do random checks of bank and credit card statements and question even small purchases you don't recognize. Thieves often test the waters with $5 and $10 purchases and then up the ante if no one
catches on.
• Consider bonding employees who will be making purchases or paying bills. A fidelity bond is employee-dishonesty insurance covering a business in cases of employee theft or fraud. If a bonded employee embezzles, the payout received by the employer can be used to recoup some of the loss and to take legal action. Rates vary depending on how many employees are covered and amount of coverage, but according to the U.S. Small Business Administration, a fidelity bond should cost 0.5 to 1 percent of the coverage obtained, so at most a $1 million bond would cost $10,000.
• Don't sign checks without seeing the corresponding invoice. And avoid signing blank checks.
• Consider conducting criminal and credit checks on job candidates. Make sure this is legal in your state, however. Some states have outlawed this practice.
• Insist employees use their vacation time. Often schemes reveal themselves when the employee involved is not there to keep up
the ruse.
• Work with your bankers. You may be able to provide them with a list of approved vendors so they can notify you if checks are written to
anyone else.
• Look at statements from vendors over a few months' time. If you notice all invoices from a single vendor are in numerical order without skipping any numbers, then you are their only customer; you are writing checks to a fictitious vendor, or they have an unusual accounting system that I'm sure they'd be happy to explain to you.
What to Do if it Happens
De Jong's advice to any business owner who discovers an employee is embezzling: Don't pull any punches. He says when the fraudulent employee was confronted, she confessed and resigned. But it didn't end there.
"We took all the information we collected from the stores and turned it over to the local jurisdiction and we're prosecuting to the full extent of the law," he says. "This wasn't a mistake, this was theft and we have a no-tolerance policy when it comes to theft. We'll let the law determine what happens next."
De Jong says he wanted to send a strong message to employees that if they knowingly do something wrong, they will get caught and prosecuted. To head off rumors, he sent an email to everyone in the company telling them what happened. He says he got 20 messages of support in return.
After the legal dust settles, procedural changes have been made and the embezzler's carefully vetted replacement is on the job, de Jong and his staff can put this incident behind them. Hopefully his story will encourage others to proceed with caution and take necessary steps to prevent employee fraud altogether.
