Street Smarts: The Unkindest Cut of All

If you've ever experienced employee theft, you know that the money is the least of it. Far worse is the sense of betrayal. Once you've been burned, can you ever trust anyone again?

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Street Smarts

A friend of mine was telling me recently about a woman he knows who owns a couple of successful bed-and-breakfast places. We'll call her Naomi. About three years ago she decided she needed a break from the day-to-day management of the business, where she'd been putting in 55-hour weeks for almost nine years. Both B&Bs were doing well and had general managers she trusted completely. The time seemed right to let go.

So she did. For the next two years, Naomi had a wonderful life. She traveled. She got married. She devoted a lot of time to recreation, hobbies, and charity work. Once a month, she would sit down with the general managers to talk over business issues, and occasionally she'd drop by her establishments to have lunch with the staff, but by and large she left the company alone. Everything seemed fine, and she was happier than ever. Why mess with success?

Then, about a year and a half ago, she began to pick up murmurs of problems at her largest B&B. One of her most loyal employees, the head housekeeper, told Naomi that she'd heard disturbing things from close friends of hers who worked part-time at the front desk. A couple of the people there weren't honest, they'd said. Naomi spoke to the B&B's general manager, Janice, who dismissed the report, noting that the housekeeper often exaggerated. That was true, Naomi agreed.

But there were other signs. Guests would sometimes check out and call back a couple of weeks later, asking for a receipt, and the B&B would have no record of their stay. What seemed like excessive charges for room furnishings and entertainment appeared on the B&B's credit card. When Naomi checked petty-cash drawer one day, she was shocked to find almost $1,000 instead of the usual $100. Janice said that some people were asking to be paid in cash. "We don't do that," Naomi said and took the extra cash to the bank.

The truth is, Naomi didn't want to know what all the signs were pointing to. She was enjoying the life she had and had no interest in going back to 55-hour workweeks. Besides, she trusted Janice, who was not only one of her general managers but also a personal friend -- or so she thought.

But the evidence kept mounting, and the housekeeper kept insisting. She noted that she had detailed records of the rooms her staff had cleaned. They could be checked against the records of the rooms guests had paid for. Finally, Naomi gave in and did an audit, which took her more than two months to complete. The result: about 30 rooms a month were unaccounted for. That translated into the disappearance of more than $50,000 a year.

The loss of the money was the least of it. Far worse was the sense of betrayal. I decided to trust no one -- which was exactly the wrong response.

Naomi could no longer ignore the evidence. She insisted on implementing new procedures. When Janice resisted, Naomi fired her and began working full-time again at the B&B. It soon became clear that the situation was even worse than she'd imagined. Another employee, caught red-handed, confessed to stealing $30,000 over two years. He said Janice had coached him -- and had walked away with far more money than he had taken.

I know just what Naomi felt at that point. She was devastated. She was angry. She felt betrayed and violated. How could people do that? She blamed herself for allowing it to happen and swore that in the future she'd watch the business like a hawk. No one could be trusted to run it in her absence. From now on she'd be there full-time.

That was my reaction when the same thing happened to me in the early days of my company. I, too, learned that a key manager -- someone I'd regarded as a personal friend -- had been stealing from the company, and the discovery was absolutely shattering. The loss of the money was the least of it. Far worse was the sense of betrayal. I felt completely alone. I didn't know whom I could trust anymore. I decided to trust no one -- which was, of course, exactly the wrong response.

The biggest problem with employee theft is that it often leads you to make bad decisions about your business and your life. The emotions are so overwhelming that you tend to overreact. You can't get back to making good business decisions until you take the emotions out of the process.

The first step is to understand that theft is a business issue and needs to be addressed as such. In most cases, it happens because there's a problem with the procedures in your business. Maybe you've neglected to establish a certain check or balance. Maybe people weren't following the procedures you already had in place. Maybe you just weren't paying attention. In any case, something went wrong. You need to find out what it was and fix it.

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