inventory

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Fraud Prevention Tip: If Someone Commits Fraud, Have Them Thrown in Jail

One thing I consistently find to be true is that, from a legal perspective, 75% of people who are caught stealing and committing fraud are first time offenders. That’s not because it suddenly occurred to them that they could steal and supposedly get away with it; these are people who have been caught in the past but who were never prosecuted.

That’s right – people catch other people stealing money and inventory from them and don’t use the law to prosecute them, whether for restitution or punitive reasons.

Why Don’t People Prosecute?

People don’t prosecute for a few reasons.

1. It seems easy for us to say, “Oh my gosh. Someone was stealing from you? You had them arrested and sued them, right?” After all, if someone broke into your home and stole your grandma’s diamond necklace, you would sue them, wouldn’t you? Of course you would, but for some reason when people work for us and we feel like we know them, we want to forgive them and not mess up their lives, so we fire them – but we don’t prosecute. However, if people don’t go to jail, they don’t learn their lesson (this isn’t some legalistic philosophy I stick by – this is based on the experiences that I’ll flesh out more below and in future posts).

2. Prosecuting seems messy. It creates paperwork, involves lawyers, and it takes time, energy and more money, and you’d rather not lose more considering that someone’s been stealing it already, right? Wrong. You can get some of that money back if it can be had, and the mess is worth the trouble.

3. It’s embarrassing. People think it’s embarrassing that someone was stealing from them and they didn’t uncover it sooner. They don’t want other people to know, whether employees, the public, friends or family. They don’t want a big deal made, attention attracted, ill will and weird feelings. It seems icky somehow and people seek to avoid the associated feelings.

What Are the Consequences of Not Prosecuting?

When people don’t prosecute it hurts everyone and it’s bad for the larger business world. In the long run, when people prosecute it benefits everyone, from employers and industry to the average honest worker who deserves a job for which he’s not competing against thieves.

One of the biggest problems of not prosecuting those who steal and commit fraud is that you can’t say to their next potential employer that they’re thieves. Legally, if you fire someone for theft but don’t prosecute in a court of law, you can’t say that he’s a thief. That means you have to say that you chose to part ways amicably or you will be seen to be impeding his ability to acquire gainful employment without legally proving the reason he doesn’t deserve it. The word that comes to mind here is poppycock!

Prosecute thieves and those who commit fraud to ensure that you can tell future employers the information that they deserve to know. Then you can let those employers make informed decisions about who to let in their businesses.

Again, those who commit fraud aren’t first time offenders – they’re just getting caught for the first time and prosecuted. Do us all a favor and make sure people are prosecuted for their crimes.

Have you ever prosecuted someone for fraud? What happened?

Have you ever chosen not to prosecute someone for fraud? Why not?

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What Wally the Walrus can Teach us about Effective Process Development

Processes. Oh, processes.

How easy they are to ignore. How easy they are to let languish.

But don’t.

If cash is the blood of a business, departments are the organs and personnel are the cells, then processes are the bones. You must build your business on efficient, effective and solid processes.

What do you do when a customer’s order is going to be late? How can you track all of your supply usage and reordering supplies? How do you set a new vendor up in your system?

Your business rests on the foundations of these processes running correctly, and they should be consistently evaluated, adjusted and strengthened. Think of that evaluation as drinking milk and giving your business the calcium it needs.

Hire Someone? Yeah – Hire You!

Many people hire consultants to come in and tell them how to enact more effective processes in their daily business management. Consultants often have great solutions that they’ve designed or a commanding understanding of best practices, but before resorting to this route consider being your own consultant.

As the leader of your business, you should know how things run. You should be in touch with the people who work at your business at every level. You should be asking them questions about the kinds of issues they see or when something seems to consistently work incorrectly. You should find out what they do and how they do it. You should ask them if they think there would be a faster or smarter way of doing something that wouldn’t compromise other important principles (like quality, customer service or another step in the process).

And then you should put that information together and consider a reevaluation and a strengthening of the processes that govern your business. If there’s something happening that doesn’t have a process and keeps occurring in an erratic manner, put a process in place.

Zoey’s Zoo

Let me give you an example. Let’s say you run an online retail store called Zoey’s Zoo in which you sell various animal figurines directly to customers but also to various zoos and theme parks around the country (first, I hope you have separate processes for dealing with your B to B and B to C customers). What do you do when Wally the Walrus figurines are no longer available in the largest size but you get an order for one? Do you pull the product from your website, backorder the item, or contact the customer whose order will most certainly be late? As you bypass the order number and continue fulfilling orders that are in stock do you have a system for returning to this unshipped order?

If you are Zoey, you need to have a process for what happens when a product runs out of stock. You need a pipeline for pulling the product from your website, informing customers with outstanding orders, checking on the status of any incoming inventory, and then making sure that Wally the Walrus is purchasable again when it’s back in stock.

This may seem like a basic example and an easily constructed process, but it’s just one small bone among hundreds that make a body stand tall and a business run efficiently and effectively.

Consider the processes at your business. Evaluate and reevaluate.

Stand Tall.

What do you find to be the most difficult element of process creation and management?

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The CEO’s 10 C’s of Borrowing

Bankers and business owners can have trouble communicating because their mind-sets are different.

As someone who began his career as a banker and who has spent the last 30 years doing interim-CEO turnaround management, I understand the banker’s mindset while having profound insight into what makes businesses run successfully from the top. Most of my day is spent playing “Let’s Make a Deal:” negotiating with lenders, creditors and bankers in order to get CEOs and their businesses new terms that allow continued operations.

In my experience, it’s particularly difficult for these two groups – business leaders and bankers – to understand each other because they’re coming from such different places and have seemingly different priorities.

Part of the process is helping both sides see that they’re in a partnership. Both bankers and business owners want to see the business continue to run because that’s the most likely way for the bank to recoup its loans and eventually see profits, and its the only way that the business will turn from debt to profit.

Thus, as a business owner, you should strive to understand how your banker thinks – and why he thinks that way. This can have a positive effect on your relationship and make it easier to get money when you need it. I present to you, then, “The CEO’s 10 C’s of Borrowing,” which will help you become a better borrower, enhance your relationship with your banker and make money more available when your business needs it most.

1. Character is of the utmost importance to bankers.

Bankers need to know you’ll do the right thing when your company is in distress. If they can’t trust you, they can’t put money in your hands. That doesn’t mean fake good character – it means have and demonstrate good character.

2. Carelessness comes down to poor record keeping.

Carelessness can also hurt your bank by causing it to write-off loans needlessly or even lose its federal loan insurance such as SBA Guarantees. Run your shop well, which includes good book-keeping practices, regular audits, competent comptrollers, and mixing up your monitoring practices. Not being careless also means verifying for yourself the details of your business’s financial situation.

3. Complacency is not an asset.

Banks are interested in how you react to tough situations. Don’t just tell them what you’re legally required to when they ask; keep them updated to avoid surprises. Bankers hate surprises. This is all a part of the larger principle of being proactive rather than reactive. Proactive business owners keep their banks apprised of the situation, which makes their banks more likely not to react to unfortunate circumstances by demanding payment on loans.

4. Contingency Plans are key for orderly succession if something happens to you.

Bankers value stability, and even though many business owners think they’re invincible, history has proven otherwise. If your bank knows what will happen in the event that something bad happens to you – like disability or death (God forbid) – that’s comforting to them. If they know what will happen to your business in the event of various catastrophes, they’ll continue to work with subsequent leadership. It’s also wise to introduce your banker to the future generation of leaders at your company. Have contingency plans. Nothing works out like your spreadsheets suggest.

5. Capital is your net worth (assets minus liabilities).

Bankers want an extra cushion of equity so they can be more flexible with your company in case it has a bad year. A CEO and a banker need to balance one another’s needs in order to maintain sufficient capital. I sometimes find that telling entrepreneurs, owners and CEOs to keep extra capital around is like telling a dog to save part of his dinner for later, but if you can show your banker that you’re capital-wise, he’ll be more likely not to call your loan after a bad year.

6. Collateral is a bank’s leverage and makes bankers feel more comfortable.

Collateral does not repay a loan, as many entrepreneurs think when they pledge their assets, but again, it does ease the banker’s mind.

7. Capacity is your ability to repay.

Bankers check to see if you have champagne tastes but a beer wallet. If you seem like you can repay what you’re asking for – which is to say, a reasonable sum and not your dream loan – you’re more likely to see the money. Shoot for the stars in life, but a bank loan is a different matter.

8. Competition works to your advantage.

Banks are concerned about their competitors’ interest rates, collateral packages and guarantees. You can use this to your advantage by doing your homework when seeking a loan and making that clear to your banker (though no one likes to feel threatened, so be courteous about this). Knowing about your bank’s competition can also let you prepare for a quick capital search should your banker pull out.

9. Controls are your built-in monitors.

Bankers want to know about your company’s controls. Do you have checks and balances for payroll clerks, controllers, CFOs, and inventory personnel? Do you watch the back door? Outline the steps you take in your plans and conversations with your banker; ask for his recommendations. If you find an issue, correct it and then update your banker that you’ve fixed the problem.

10. Communication is essential.

Almost every one of these tips hinges on communication. Don’t keep things from your banker. If he knows what’s happening he can work with you instead of against you. Work with your banker for the best relationship.

With “The CEO’s 10 C’s of Borrowing” in mind you’ll be better equipped to understand where your banker is coming from and not get frustrated when things don’t seem to go your way. Talk with your banker and try to understand him. It will only be to the benefit of your business.

Which of these have you found useful or true in your experience? Let us know in the comments.