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Dealing with Stealing

What's your strategy for handling employee theft? As the holiday season gets under way, it's helpful to remember that, unfortunately, no company is immune.

We don’t talk about it much but most of us have experienced employee theft in our corporate lives. The multi-million dollar hits make the headlines; ours seldom do and yet, they’re just as impactful. Like it or not, none of us is immune and when theft is discovered, there is no limit to the range of emotions we may experience. It’s usually met first with anger, perhaps a sense of betrayal and ultimately by confusion about what to do next; after all, chances are we knew the thief!

Because I’ve worked with so many enterprises my familiarity with corporate theft is more than I would like; even worse, I have experienced it personally. I’ve seen it in dollars, merchandise, services and supplies. The spectrum has covered everything from a run on office supplies at back-to-school time to hundreds of thousands of dollars’ worth of goods. What follows is a summary of a few of the many I’ve seen. I’ve categorized them as equity, meaning equitable treatment; need, suggesting excessive debt or credit squeeze; and criminal intent. Not all were handled appropriately.

Equity: We were retained by a multi-state service company to champion growth and improve profitability. Neither objective was particularly challenging but as we worked through our assessment of basic metrics, we became concerned about reconciliation of cash. The weekly reported cash collections from the field were consistently higher than those recorded by the CFO in his bank deposits. Digging deeper we found that he was skimming hundreds, sometimes thousands of dollars each week. We confronted him and he “confessed.” His rationale? The owner was skimming far more than he was—so there! We informed the owner, the CFO was then terminated and, because the owner was “stealing from himself,” we resigned the account, leaving the owner’s fate with the IRS.

• Equity: An individual sold his company to a larger publicly traded competitor. The terms of sale included an executive role for him in the larger company and payment for the sale in restricted stock instead of cash. For many reasons, the stock declined far below its value at closing and never recovered; the company went private. It was eventually discovered that the “seller” had routinely diverted hundreds of thousands of dollars from his division as a means of recovering the lost value of the stock price. After discovery, the episode was rarely discussed.

• Need: A client had invested in a relative’s failing business and asked us to look in on it to see if it had any chance of recovery. We found that there were some hurdles yet to overcome but it had a good chance to return to profitability. The business was a distributor and had counter sales in addition to open account industrial customers. Our discovery? “5 at 5.” Our client had insisted that his relative take a substantial cut in salary, which he did. But, at 5PM each Friday, the relative made up for it by taking $300-$500 from his own cash register. We added ‘Due from Owner’ to the balance sheet, informed our client and the practice stopped.

• Need: A man worked for me specializing in executive search. I had known him for years. An executive from a national company met with me and told me how pleased he was with the caliber of talent we had found for him. He showed me a few paid invoices that were not on my company’s letterhead.Go figure, my long term acquaintance had burned me for $40,000 complicit with an employee of the national company who incidentally had diverted at least $110,000 from their vending machines. I raged, fired him and insisted on reimbursement in 10 days or jail. I got the money. Ironically, I called the IRS regarding undeclared income and they advised that if I was reimbursed, there was no case.

• Criminal: After signing a NDA, a contract engineer walked off with a $3,500 plus company computer loaded with intellectual property. The police never found the computer, but they found him; he was criminally charged and found guilty.

• Criminal: A major retailer found a $300,000-plus gap in its inventory and began to audit warehouse picks against scheduled deliveries. It became clear that one delivery crew was picking more than needed to support their delivery sheet. They were discreetly followed a number of times and then, when the warehouse was busiest, the state police were invited in. The crew was arrested on the floor—a good message to all—and charged with selling merchandise off the back of their truck.

I’ve seen too many compromises when theft is discovered through DBS Checks. If the perpetrator is a long-term employee, there may be a temptation to reprimand or to quietly exit him/her and move on. Even when the employee is let go, there may also be a temptation to keep a lid on the matter, for fear it might reflect negatively on the company’s and board’s governance skills, especially in the eyes of our investors and lenders.

None of us is immune and when theft comes our way, we owe it to ourselves and to the enterprise we serve to do the right thing: let professionals determine the outcome and the consequences.

Lesson learned…the hard way!


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