Recognizing and Rectifying Embezzlement in a Family Self-Storage Business
Copyright 2014 by Virgo Publishing.
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Posted on: 07/06/2013



 

By Lois Lang

Hearing about embezzlement in a public company rarely shocks anyone, but when it happens in a family business, people are often stunned. “How could he steal from his own family?” “Doesn’t she know she’s hurting her siblings/cousins/parents?”

As tough and painful as embezzlement is, it’s not as uncommon as many of us would like to think. Sure, the kind of embezzlement that results in jail time is rare, but other levels of it happen daily.

How could this happen? Many factors lead to embezzlement, including chronic financial strain, a general sense of family entitlement, lack of internal company controls, and the reality or perception of being overworked and underpaid. To make matters worse, often the embezzler doesn’t even know what he’s doing is wrong.

Here’s an example of how embezzlement can start small and quickly grow. Jim, the business owner’s son, fills up his gas tank once on a Friday and pays for it with the business account, knowing the miles he drives will be primarily for personal, not business use over the weekend. He tells himself it’s OK because he’s filled the tank on his own some weekends and used “his gas” for business on Monday and Tuesday.

Then he takes a few vacation days and doesn’t record it as paid time off. He picks up gift cards for employee recognition and pockets a few for himself. He knows Dad pays him less than local competitors, and this is the way he evens it out. He notices other family members treating the business the same way, so it simply becomes the “way we do things around here.” It’s their company culture, not embezzlement.

The misuse of company assets, time and money escalates. Soon, Jim adds a non-working family member to payroll, petty cash disappears, one out of 10 customer checks are rerouted to Jim’s personal account, and personal items are consistently charged to the business credit card. Eventually, an employee in accounting notices and agonizes about who and when to tell.

So while embezzlement starts small and often innocently in a family business, it can quickly escalate to something big that damages the business, hurts non-family employee morale, and breaks family trust.

Take Action

What do you do when you realize a family member is embezzling from the business? Action is obviously required, and taking a cautious, thoughtful, respectful approach is wise. To begin, have a pre-meeting of key leaders, without the suspect family member present, to address the following:

  • Do we have clear, hard, verifiable facts before we assume fault and intent?
  • Who will be at the meeting to lay out the facts?
  • Are we going to involve the legal system?
  • If we continue employment with this family member, do we need to change his job position?
  • Will we message this to the rest of the family and how? To other employees? To the board of directors?
  • Did the company contribute to this problem and how? If the company did, what steps will we take to prevent it in the future?

  • Did the family contribute to this problem and how? If the family did, what steps will we take to prevent it in the future?
  • Has this family member had chronic, known problems with finances?
  • Generally, how can we protect the company from future misuse of company assets or embezzlement?
  • How do we protect the whistleblower?
  • Do we talk openly in family council about our responsibility to financially protect and care for company assets? Do we give specific examples of what is and is not allowed?
  • Do we have a solid non-compete clause in our employment contracts and/or employee handbook in case we have to release the family member from employment?
  • Do we consistently run a professional background check on applicants?
  • If we need to walk the family member out the door, how do we prepare? What will we do about computer security, locks, passwords, current company asset retrieval, bank-account access protection, social media tracking, last paycheck, etc.
  • Do we need to involve our attorney, board of directors, accountant or a business psychologist? If so, when and how?

Once you’re clear on these aspects, it’s time for the second meeting—the one with the suspected family member. When you begin the meeting, keep it at the level of discovery. Lay out the facts and ask the family member his perception of what happened. Really listen to what he says and how he says it. Remember, it’s common for family members not to realize they’re indeed embezzling. If this is a first offense, and if the embezzlement is not excessive, some education may be the best course of action. However, if you believe the family member knew what he was doing and did it anyway, or if the embezzlement is substantial, termination may be the only option.

During the meeting, you need to check yourself by asking, “What would I do if this wasn’t a family member?” and “Is this at a level where I will be able to trust him again?” Your answers to these two questions will reveal a lot about your best action plan.

Keep Your Family and Business Strong

Of course, education of all employees (family and non-family), strict policies about how the company’s assets and resources can be used, and enforced controls that can spot any wrongdoing are the best ways to reduce your family business’ chances of falling victim to embezzlement. Acknowledging what could happen, along with some planning to prevent it, will keep your family and business strong, successful and honest.

Lois Lang is a speaker and consultant with Evolve Partner Group LLC, where she helps organizations become high-performance workplaces. She works with clients on management-succession readiness, organizational/team strengthening, executive coaching, executive compensation design, wage studies and mediated conflict resolution. For more information, call 209.952.1143; e-mail lois.lang@evolvepartnergroup.com ; visit www.evolvepartnergroup.com .