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Sunday, April 18, 2021

There are times when you do spook the herd

An expression that I use with many of our career counselling clients is, “Don’t spook the herd.” I use this aphorism to insure that new employees find a cultural fit in their new job and learn how to get along with their new colleagues in the early stages of their new assignment.

However, a time when you do need to “spook the herd” is when company money is involved. The December 2015 edition of Texas Monthly magazine told the story of an accountant at Collin Street Bakery in Corsicana and the approximately $18 million dollars that he embezzled from the firm.

Sadly, this story is not unique. In January, the Wyoming Fiddlers Association’s secretary pleaded guilty to embezzling about $10,000 from the organization. We worked with a major automobile dealer that, when a new chief financial officer came on board, immediately discovered a longtime employee who embezzled about $250,000 from the dealership. A new church business manager identified a long-time church staff member as embezzling from the offering each week. In many cases, the involved individual justifies his or her actions as because of low pay, jealousy of senior company/organizational officials or an addiction problem, be it drugs, gambling or some other problem.

In each instance, the president or CEO of the organization did not realize what was going on until another staff member identified a problem with the organizational finances. Normally the employee who is involved is a longtime trusted worker whom one would never think or suspect would be involved in such activity. Normally this employee is one who always “knows” the answer to any financial or accounting question, no matter who asks.

Many businesses or organizations elect not to prosecute the individual for fear of bad publicity or negative public reaction. However, as bad as the publicity may be, stealing is stealing. There is no equivocation here.

The easiest way to ascertain if your business has this problem, and trust me, most businesses do, is to conduct an external audit of company finances. Yes, this costs money, but having an external audit will identify, you hope, whether your accounting procedures are in accordance with generally accepted accounting principles. Many accounting firms that conduct audits will qualify the audit results and state that fraud detection is not part of the audit, however, if it is found it will be identified.

The next step is to have an uninterested third party, a business consultant or other accounting firm, come in and begin asking questions of the financial staff. We like the “Why?” question best! “Why?” engenders a series of follow-on questions, each digging deeper into the issue. This technique, used extensively in industrial quality control applications, continues to explore “why” something happens. Normally, if there is a financial accounting problem, this technique will identify the issue. This can be tedious and somewhat difficult to accomplish, however the end result is that either everything is in order and no further audits are necessary or a problem has been identified which requires further exploration and resolution.

Investigating the finances of any firm or organization will always “spook the herd.” However, this is good. If there are no problems identified, you can rest assured that your financial systems are in order. If problems are detected, you can take action to resolve them in a timely manner.

Our experience in matters such as these is that many individuals do not like to have their integrity or veracity questioned. However, we always point out that we are not questioning or impugning an individual’s integrity, we are insuring that the firm’s internal accounting control procedures are working as designed.

Take a look at all of your accounting and bookkeeping procedures. Make sure you understand what is going on, why you are taking certain actions and the reasoning behind the methodology you choose. Remember, it is your money that is involved. Don’t be afraid to make the hard decisions if you find improper actions. After all, you worked to make money.

Joseph B. Michels is a principal with Solomon Bruce Consulting LLC in Fort Worth, a professional management advisory services practice. www.solomonbruce.com

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