By Lois Lang
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.
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?