By: Ray Hankamer
There are many little ways revenues you work hard to bring in can be diverted from their hoped-for destination: the bottom line.
Sometimes the line between sloppy or lax management and pure dishonesty on the part of employees can be blurred, and it is up to you as owner / manager to run a tight ship.
Diversion of revenues from the bottom line can take some of the following “disguises”:
Sacred cow employees who have long since failed to carry their weight in the organization remain on the payroll. Put these “cows” out to pasture!
Ancient bonus plans which no longer serve their purpose as incentives. All too often a bonus plan is assumed to be part of the salary by the employee, and ceases to be what it originally was: a motivator to higher levels of productivity.
Overtime abuse. Employees who work your system to ensure that they get fat overtime pay, when a reorganization or re-scheduling could eliminate most or all overtime pay.
Too-powerful employee cliques or internal power structures. The U.S. military and most major corporations with far-flung offices around the country or around the globe rotate their executives, re-shuffling the management deck, on a periodic basis. This is to prevent remote outposts from becoming too entrenched and taking management into their own hands and defying central management.
Make sure you get a full eight hours of work-or whatever you contracted for-from your employees. Years ago one of the first huge worldwide information services companies ran a study on what the payroll cost was for employees who took their “daily constitutional” on company time, accompanied by a newspaper or magazine in many cases. The payroll costs were in the millions of dollars, and a memo went out urging employees to take care of personal business while off the clock.
Gifts and other gratuities to your managers from suppliers. It might be a simple thing like a fishing reel, or a basket of cosmetics, or tickets to the ball game to your purchasing people from vendors. These gratuities can cost your company real money if your people are persuaded to buy from purveyors who give gifts so they can sell their goods or services to your company at higher than market prices.
Embezzlement, theft, and other bad stuff. No matter how good your systems and controls and checks and balances, if you have a sizeable organization, someone has found ways around the controls.
When I ran a large hotel company with 1,000 employees, I always picked up the mail from the P.O. box one day a week (Saturday), and opened every bill, letter, and other pieces of correspondence. I signed every check to purveyors, and my accounting department never knew if or how carefully I reviewed the back-up which I required to be clipped to each check. The back-up required a signature from the person receiving the goods or services, the department head at the hotel, the general manager at the hotel, and the clerk in our home office preparing the check. If there was going to be fraud, it would have to involve a lot of people.
I also did an occasional surprise personal delivery of payroll checks to the hotels. I wanted to hand the check to an actual person, to make sure I had no “phantom employees”.
I had our Controller conduct surprise audits of safes and petty cash boxes maintained by the different managers, no matter how large or small the “bank”. I was surprised to find how often a manager had personally “borrowed” from petty cash, and it often led to discovery of other practices that were even worse.
I once noticed that a bookkeeper at a hotel making $30,000 per year was driving a Suburban which was nicer than mine. I had an investigation done by our accounting department and they caught the man stealing from cash deposits on Friday night from the large bar operation. Upon reporting the crime to the police in the local area, we were stunned to see that the detective who was sent out on the case was simply a cop who had been “promoted” from the beat. When we tried to explain the way the bookkeeper had been falsifying reports, the detective’s eyes glazed over at such terms as “debit” and “credit”, so our only recourse was to fire the bookkeeper.
All too often the employee who has developed “bad habits” is one of the longest tenured ones in the company, and ‘no one could imagine him/her EVER doing anything wrong’. It is up to you as manager to not give them the chance.
The classic story is of the former boss and former factory worker who ran into each other at the pub, after each had retired. The boss said “Sam, now you can tell me, since we are both retired. I always knew you were stealing from the company, and at the end of each day when you pushed your final wheelbarrow full of sawdust out the factory gate, I had it inspected. We never found anything, but we still knew you were stealing. So WHAT were you stealing?” Sam grinned, took a draft out of his beer mug, and said: “Wheelbarrows.”