Trusting Employees--should you or shouldn't you?                                                                August 2004

Small businesses  lost in 2002 an average $127,000 to fraud and embezzlement by employees with a total impact estimated at hundreds of billions of dollars a year. And the problem, according to the Association of Certified Fraud Examiners, is getting worse. Why? What's happening in the small business world? Are there a million little Enron's out there? One answer is straightforward--small businesses must place their trust in employees (often only one employee handles the financial books) far more heavily than big businesses. A small business owner simply must pay more attention to the work at the grass roots level and growing the business into a profitable enterprise.

Consider the case of a small businessman in Kansas who saw no reason to doubt the integrity of his bookkeeper of 12 years. While the bookkeeper was on vacation, the owner received a bill from the medical insurer saying that a $3,000 monthly premium was overdue. A check of the records indicated the bill had been paid. Further investigation of the company's books showed that other checks had been used to pay $10,000 in credit card charges -- the company owned no credit cards.

The bottom line -- the FBI determined that the bookkeeper had stolen more than $248,000. The bookkeeper was sentenced to18 months in prison and ordered to make a complete restitution of the funds. The owner says that he has received $1,000 but doesn't expect to receive more. In the meantime, the business is in a financially precarious position with the owner having to lay off three workers and delaying his retirement by 7-10 years.

The message here is that trust and opportunity, especially the opportunity to take advantage of the trust bestowed upon one in small organizations, can result in personal and organizational trauma. What would you do to strike the balance between trusting and not-trusting your employees? Is this something we should be concerned about in small public or non-profit agencies?

Source: Based on story in New York Times, May 6, 2004:C-6.