Matters of trust: when an employee embezzles from you, it's no laughing matter

Entrepreneur, March, 1998 by Debra Phillips

"They were really here [for us] during the recession," raves Lacey of his 50 employees. "They pitched in for all the right reasons."

But everything wasn't completely right at the club. "In 1995, we started seeing more bodies come through the door, but we didn't see the money in the bank," says Lacey. "We kept saying, 'We're getting a lot more people, but we don't have the funds to show for it.'"

What was wrong? One of Lacey's trusted employees - a woman who'd been promoted to bookkeeper - was embezzling. "We all did everything we could to keep costs down, and lo and behold, it wasn't that our costs had gone up . . . it was that somebody was embezzling $8,000 to $10,000 a month - sometimes as much as $12,000 or $13,000," says Lacey.

Not that the embezzlement was immediately apparent. "We just started seeing things that didn't make sense," says Lacey. "The explanations for why there wasn't any cash in the bank kept getting stranger. We [knew] something was wrong, so we brought in an accountant [to look at the books]."

Eventually, Lacey's bookkeeper confessed her crime - although, says Lacey, she initially confessed to stealing just $27,700 - a sum much lower than the more than $175,000 she has subsequently been convicted of stealing.

"This woman married her high school sweetheart, had three children, went to church every Sunday - she didn't look the part," says Lacey. "And everybody who called me after this happened said the same thing: 'It's almost always the person you'd say would never do it.'"

CASE CLOSED?

You might think that's the end of the story - employee caught, confessed, convicted. But for Lacey, whose embezzlement episode became known throughout the community, the saga was just beginning. There was still the matter of surviving the employee theft both professionally and personally.

"It isn't so much the [money] she stole," says Lacey. "It's that she was able to [betray] all these employees who had worked incredibly long hours."

Would all their hard work not be enough to get the club through this crisis? Would Lacey himself lose faith in people in general - and those working for him, in particular? In a word, no.

"There are always more good people than bad," says Lacey. "People do care; they want to help. I am the most thankful guy on the planet."

Thankful because once word got out about what had happened, big-name comedians called to say they'd come in to do shows. Customers lined up outside the doors; they even offered to donate money and answer phones. And Lacey's other employees - stunned and upset by the embezzlement-asked their boss how they, too, could help.

"It was much like 'It's a Wonderful Life,'" recalls Lacey. "Every comic and all the variety acts were saying 'We're not going to let anything happen to the club. We're all coming down.'"

And they did. So what started as a cautionary tale evolved into, well, a story with more than a few Capra-esque elements. Lacey says now, "We're fine - and we're going to do great."

EPILOGUE

Although he professes to have always been careful in overseeing his business, Lacey says he's now instituted even more safeguards against employee embezzlement - including having more people look over his financial records. And he's switched banks because of the lack of scrutiny he felt his former bank gave his company's check processing during the time of the embezzlement. "This never would have happened if it wasn't for the fact I was naive enough to think that if somebody forged my name on checks, the bank would [catch it]," Lacey claims. "If they had called me once when the checks came in looking terrible, it never would've happened."

As for what has happened to his former bookkeeper, Lacey feels only sadness. "No one wants to see a mother of three go to prison for four years," he says. "You just wish you could change the whole thing - but you can't."

RELATED ARTICLE: Play It Safe

There's no sure-fire way to prevent employee theft. But Read Hayes, president of Winter Park, Florida-based Loss Prevention Specialists, offers these steps to safeguard your business:

1. Maintain a culture of honesty. "Define what's out of bounds And what's not,' says Hayes.

2. Carefully screen employee applicants. "Past behavior is the most powerful [indicator] of future behavior," stresses Hayes.

3. Institute procedural controls that limit the opportunity for theft.

4. Make use of available surveillance technology.

5. Follow up on the safeguards you use. Hayes notes, "If nobody looks at [loss-prevention] reports, you're not going to have deterrence."

D.P.

RELATED ARTICLE: On The Take

Ever wonder what goes through an embezzler's mind? In this exclusive disclosure, one ex-embezzler reveals why she stole from a former employer:

"The funny thing about it was I had never done anything like this before. I'd seen other people steal while I was working at other places and thought, 'No, this isn't right.' I once managed a video store for two years for only $4.25 an hour-and I never took anything. I was so honest.

"So what happened? I was working as a sales clerk at a retail store in Phoenix, Arizona. I didn't know anybody was stealing from the register until one day somebody made a comment like 'Oh, I've given myself a raise.' I said, 'What are you talking about?' Turns out, everybody was stealing.