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Employee Theft: The Books Won’t Lie

Employee Theft: The Books Won’t Lie

Question: Four years ago I bought my family's restaurant from my parents. They'd always seemed to make money and I thought buying our Employee, Theft, Workplacerestaurant would secure my future. I'd grown up in the restaurant, first bussing tables and waitressing, and then working the floor as hostess when home from college.

I was a junior high teacher for 10 years. When my parents announced they planned to retire and were putting their restaurant on the market, I was ready for a change and thought, what if I bought it? When I told my parents I wanted to buy the restaurant, they were initially stunned, but grateful.

The bookkeeper/food buyer, "Sharon," had been there for years and gave me financial statements, a business valuation and helped write the loan package I took to a bank. Sharon has been a fixture in the business and earned my parents' respect by working 15 years without a day off.

My parents cut their price to sell the restaurant to me. I got a bank loan based on the business's valuation, longevity and my history with the business.

The first year, things seemed OK. I hadn't expected how hard it was to hire and keep quality staff or make a profit, but we squeaked by. I wasn't making any money and kept wondering how my parents had done so well, but kept plugging on, often working 16-hour days.

In the next three years, things got worse and worse. We'd have a full house at lunch and dinner, but we barely broke even.

I tried to find out what was going wrong by taking a look at the books but it was hard to find a time when Sharon wasn't here and feeling upset that I was looking through things. I know something's wrong, because I now keep my own records of the money coming in and some things don't seem to add up. Yesterday I asked Sharon for last week's food receipts, she looked like I'd slapped her and reminded me my dad never "messed" with the books.

I've tried to talk to my mom but she never knew too much about the business end and my dad is in the first stages of Alzheimer's and I don't want to pester him.

I'm thinking maybe I better just sell out but it's clear to me Sharon's valuation wasn't accurate. I'm worried I won't get as much for the restaurant as I paid my parents, will have wasted four years of my life and be on the hook for the rest of the bank loan to buy the restaurant.

Answer: No matter what happens, you haven't wasted four years; you've learned real-life painful lessons. Your lessons include: working in a business doesn't prepare you for running it; business owners often put in twice the hours of other employees; incoming revenue doesn't equal profit and owners can't afford to delegate financial oversight.

The immediate trouble signals I see? Sharon resents your looking at the financial records; you sense inaccuracy in her valuation statement; and because your father didn't "mess with" what Sharon did, he gave her freedom to potentially siphon money. An employee who never takes a day off might be incredibly dedicated and absolutely the teammate you need to make this restaurant a success. When this employee has sole dominion over the financial records in a cash business, however, this can equally signal embezzlement.

What can you do now? Find a financial auditor skilled in detecting fraud and available for an immediate assignment. Meet with Sharon and let her know you and she need to work together to make this restaurant a success and that requires your understanding the business's financial reality. If Sharon protests, immediately bring the auditor in. You might lose Sharon and that might be what saves your restaurant.

What additional advice would you provide? How have you had to deal with possible workplace theft? 

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Lynne Curry, Ph.D., SPHR and owner of the Alaska-based management consulting firm, The Growth Company Inc. consults with companies and individuals to create real solutions to real workplace challenges. Their services include HR On-call (a-la-carte HR), investigations, mediation, management/employee training, executive coaching, 360/employee reviews and organizational strategy services. You can reach Lynne @ www.thegrowthcompany.com, via her workplace 911/411 blog, www.workplacecoachblog.com or @lynnecurry10 on twitter.

One Comment


  1. To prevent employee theft, owners should; 1) have internal controls such as; audits, limited ” signing” authority for checks and accounts, inventory counts, etc., 2) policies that spell out the “consequences” for specific employee actions, and 3) willingness to enforce the policies.

    I once worked for a company where an accountant was suspected of stealing royalties by setting up false accounts and depositing them into his personal account. When the Controller had the evidence, the President of the Company had him arrested in front of everyone in order to set an example. Guess what? No more theft.

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