ATLANTA - “Small business is an easy prey - from embezzlement to side jobs,” said Mike Bidwell, COO and president of the Dwyer Group.

Bidwell was trying to get the attention of attendees to a panel discussion of “Protecting Your Business From Fraud and Theft” at the annual convention of the Dwyer Group, a franchisor that owns companies like Aire Serv, Mr. Electric, and Mr. Rooter. He used the statistic of total business losses to provide even greater interest. “Ninety-five percent of losses come from internal theft and 5 percent from external theft,” he added.

The panel included John Akhorian and Bruce Alexander of Mr. Rooter, Glen Gallos of Mr. Electric and Mr. Rooter, and Nick Greville of Portland Glass.

Jeff Moody of Mr. Rooter also moderated the panel and talked about internal controls that are needed for safeguarding the assets of a company including checking the accuracy and reliability of financial statements, promoting operational efficiencies with best practices, and encouraging adherence to managerial policies.

“Your employees will follow your lead,” he said. “Your people won’t feel bad stealing from you if you take advantage of your customers.”

DISHONEST EMPLOYEES

Moody said one important component of internal controls is to reconcile bank statements. Akhorian supported that statement by giving an example of how some of his company’s counterfeit checks had cleared his bank, something he would not have known if he hadn’t checked his statements. He eventually added a check encryption software program to prevent fraud. “Timely reconciliation is very important,” he added. “And have two people doing the checks and balances. If you are a small shop, give the illusion that you are checking on your bank accounts.”

Gallos said one out of 10 people will steal from a company. “Numbers don’t lie but people do,” he said. “Make sure you have an accountability standard and hold your employees to it.”

Gallos told attendees that he once caught a service tech stealing - one of his best and trusted employees - and the losses almost came to $10,000. “He thought he was entitled to steal from me,” Gallos said. “On his exit when I fired him he told me that I had just lost the best employee that I had.”

Alexander also talked about reviewing his financials and included a story about an employee who wasn’t making money for the company and noted a very high material cost percentage for his jobs. He concluded that the employee was doing side jobs.

“Look for variances in your percentages for the cost of doing business,” he said. “Check invoices and see what is being charged for supplies. Employees with personal printers the same as company printers may be buying extra ink cartridges and make sure tire purchases are for service vans and not for cars.”

By keeping a close watch on materials and replenishment trends, situations like these can be avoided. Alexander also mentioned, “I know of one contractor who was making payments on 12 service vans although he only owned 10.”

Greville talked about the importance of background checks for prospective employees. He mentioned the story of an employee who worked for two different franchises under different names. He drove an expensive car and handled all of his company’s cash jobs. He only turned in a percentage of the money and kept the rest.

“I also caught an employee with 25 years of experience who was doing a side job, buying windows from one of his suppliers, a practice that my company has since ended,” he said. “He was installing them at a friend’s home and it wound up costing me a $12,000 job.”

The panelists concluded that it is important to:

• Have a written internal control program, which keeps “honest people honest;”

• Write and post an ethical conduct policy;

• Pay particular attention to trusted employees and “trust but verify;”

• Enforce mandatory vacations.

Moody added, “Prevent side work by checking vehicle mileage, utilizing GPS, having vehicle check-in/check-out procedures, and reviewing cancelled purchase orders.”

Publication Date: 07/30/2007