The Ugly Truth About Cash: Four Important Truths

12/20/2017 03:19 pm ET

Recently on the Price of Business Show, I interviewed author and business consultant, Ruth King, about her up coming book, The Ugly Truth about Cash: 50 Ways Employees and Vendors Steal from You and what you Can Do about It. It is scheduled to be released in January 2018, I was able to get an advance review copy. It is highly accessible and valuable for everyone serious about maintaining a healthy bottom line. In her book and interview, she pointed out several ways owners can get a handle on this situation, here are the top four mistakes businesses make.

Change your financial statement report totals.

Few owners put their financial statement report expenses into a spreadsheet to make sure they add up. They trust them.

Here’s how to steal: Individual expenses do not add to the total expenses shown on your financial statement. For example, vehicle expenses: subcategories usually include gasoline, repairs, maintenance, tolls, and parking. Each subcategory has an expense amount. When you add the subtotal expenses they are more than the total vehicle expense shown on the statement. The difference is stolen.

They get away with it by creating journal entries to change the numbers on financial statements because journal entries never appear on statements. Decrease the expense. Decrease the cash. Or, create a business checking account with a legitimate sounding name and write checks to that account. Or, if you have petty cash and do not reconcile it, that is an easy way to steal.

Keep people honest by entering your expenses stated on your P&L into an Excel spreadsheet. You do not have to do it every month; however, you should do it a few times a year.

Give Out Bonus Checks

Many companies give employees bonuses. They give the bonus after the Christmas holidays because they do not want employees to think that it is a Christmas Bonus and should be expected in spite of profitability.

Here’s how to steal: For one company, this year the bonuses were large because of profitability. Unbeknownst to the owner, one of the employees was so thrilled with the amount of his check that he bragged about it on Facebook.

The picture showed the check amount, account number, and bank routing number clearly visible on the picture. He got a call from his banker about large withdrawals from the company and the bank account to a unusual location. The owner said they did not authorize them. The banker shut down their accounts. The theft was caught before significant damage was done. Then they investigated and found out about the check on Facebook.

The owner told the employees what happened. They did not say who did it.

Next year, bonus checks will be direct deposited into employees’ checking accounts. Consider direct deposit for your payroll checks. With direct deposit, employees get a notice of their gross wages and deductions. They see that a certain amount was put in their checking account. Employees cannot see the company’s checking account and bank routing numbers.

If direct deposit is not an option, have a separate payroll account where you just keep enough money in it to fund each payroll period.

Use Signature Stamps

Three partners operated a business. One focused on sales, one on operations, and one did the books. It was the perfect start-up because each manger was focused on a critical area.

They decided that two signatures were necessary for any check that was written on the company’s account. The thinking was that two signatures would make all owners aware of expenditures.

One owner started to have health problems and was not present in the business as much. The partners decided to have a signature stamp made and gave it to the partner who was responsible for the business’s financial segment.

This proved to be the wrong person to give the stamp because he was embezzling at least $50,000 a year from the business.

Whenever he wrote a check to himself, he had two signatures: his and the signature stamp. He coded the check to whatever he felt would not be noticed. Fifty thousand dollars is less than $1,000 per week. Usually he coded it to things that would not be noticed because the expenses were very large as a rule.

If you require two signatures on checks, they should be two signatures, not include a signature stamp. Also, review financial statements every month.

Your Suppliers Steal from You

A business owner was reviewing his bank statement and noticed a copy of a check to his auto repair shop that seemed higher than he remembered.

The next morning he brought the bank statement to the bookkeeper and asked her to pull the back up for the check to the auto repair shop that was used. The invoice from the company showed $49. He signed a check for $49.The amount taken from the company’s bank account on the bank statement was $449.

The microfiche picture on the statement showed $449. Someone in the shop had altered the check and added $400 to the check! The owner took the bank statement, the actual invoice for $49 and the check stub showing the check for $49 to the bank. They credited his account for the $400 and went after the auto repair shop for the funds.

Most of us never imagine that our vendors will steal from us. Yet, vendors’ employees can steal just as easily as yours can. Had the owner not reviewed the bank statement and remembered the amount of the check that he had signed, the thief would have gotten away with $400.

Always ask your bank to send your bank statements home. And, look at your online bank balances at least every other day. Another great reason for sending your bank statements home is you see all of the bounced checks, late payments, etc. associated with your bank account. It’s your hard earned cash — keep a close eye on what is going on with it.

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