Business Building: Can Trusted Employees Break The Rules?

Words: George Hedley

Have you ever had the day from hell? One of my construction company coaching clients recently told me a long and winding tale of employee theft and deception, too horrible to believe. He had recently hired a new controller, and as he began to take over the accounting department, he discovered some unusual situations. For starters, the company cell phone bill included four phones he couldn’t identify. He called these numbers, and young children answered the phones. He discovered that the sons and daughters of the accounting staff were provided with company cell phones without authorization. This was just the beginning!

Some People Are Sneaky!
It’s amazing how sneaky, creative, and unethical people can be. The new controller continued to discover that many more illegal, immoral, and improper practices had occurred on an ongoing basis. One of the key project managers, who had been there for 20 years, was having the company pay for personal items by job charging his personal credit card expenses to project cost codes. When he charged these expenses as project costs, he was able to enhance his lifestyle at the company’s expense without detection. The controller also discovered that unusual payments occurred during the remodel of another project manager’s home. He was approving invoices and job charging labor, materials, and subcontractors who worked on his home to company construction projects he was responsible for.

The controller also found out the payroll manager had used the automatic payroll deposit feature in the accounting software to advance extra money on her paycheck for days and overtime not worked. The human resources records were lacking proper documentation for vacation time taken, too. When people who were friends with their manager were on vacation, no vacation time was being noted in their records. Some office staff had been paid for 40 hours when they regularly left early or took personal time off. One bookkeeper was even found using the company’s UPS and postage meter to run her own mail-order business. In another instance, he found several paid backhoe invoices charged to an interior improvement project. Turns out the backhoe company was owned by an employee’s brother.

How Much Should You Trust?
The owner had prided himself on building a company based on integrity, considering his people the number one asset. His motto was to build a great place to work and try to delegate and trust key employees 100%. This was obviously a mistake without controls in place. Numerous employees were aware of and involved in improper behaviors, but didn’t act or report them. In the end, only one person was terminated, but eight people resigned who were involved or had condoned the situation. Not only did this cost his company in excess of $250,000, but he also lost a company vice president, several key employees, momentum, morale, and a small part of their impeccable reputation with customers and subcontractors.

Do You Have a Clue?
As the owner and leader of your company, you set the vision, values, and goals, and then trust the key manager and staff to implement and make it happen. When I owned my commercial general contracting company, I delegated 95% of the day-to-day operations, including approving project invoices, negotiating subcontracts, reviewing insurance terms, managing employee benefits, and inspecting detailed job cost reports. I thought I had people who were trusted. We had a profit-sharing program, an open-book policy, and a team approach to overall company management. But it was obvious I didn't see what was happening right in front of me and wasn’t watching closely enough. Unfortunately, I also had some of the same issues with employees as my client had experienced.

Some clues you should look for include employees who are remodeling homes or building pools, acquiring new expensive assets such as cars, trucks, boats, or RVs, or experiencing marriage difficulties and separations. Other indicators could be new marriages accompanied by big weddings, new family pressures such as children starting college, or staff members buying new or larger homes. Additionally, noticeable changes like plastic surgery or makeovers, consistently leaving work early or working fewer hours, and displaying personal stress not directly related to work can be telling. Be cautious of managers not leading by example or conducting secret meetings behind closed doors, as these may also be red flags.

To avoid this from happening to you, implement the following:

Have someone review all company credit cards
Send bank statements to the owner’s home
The owner signs all prime contracts and modifications to subcontracts
Either the owner or two signatures or approvals are required on:
All checks
Subcontracts, purchase orders, and change orders
Reimbursable expense accounts
Overtime and vacation requests
Payroll preparation, approval, and deposit
Project payables and job costs
Personnel records must be perfect
Follow your employee manual to the letter
No exceptions to the labor code or laws
No special exceptions for long-time employees
Trust your people, but follow your rules

You want to trust your people, but must install rules and controls. A few simple checks and balances could avoid lots of problems, disappointment, stress, and financial loss. Don’t wait until it’s too late to implement these safeguards.

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ABOUT THE AUTHOR
George Hedley CPBC is a construction certified professional business coach, consultant, and speaker. He shows contractors how to increase profits, grow, be organized, systemize, get unstuck, and move to the next level! He is the author of “Turn Your Construction Business Into A Profit-Making Machine!” available on Amazon.com. To schedule an introductory coaching session or get his free e-newsletter, email GH@HardhatBizcoach.com. Watch his videos at youtube.com/@HardHatBizCoach and download online courses or get his contractor templates at https://constructionbusinesscoaching.com.

Business Building: Can Trusted Employees Break The Rules?

About: Business Building

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