The names have been changed in this story to protect the guilty – and innocent – but the story is true.
I received a call late one evening at home. It was Janelle. I had advised her in her career, and saw her advance quickly in the ranks at her family business.
Janelle had just been arrested and she was calling to give me a jailhouse confession of sorts, to tell me how she had let me down and had let herself down. She was recently married and had a baby on board. She had the money from the family business by including a deceased relative on the payroll whose account she oversaw as executor. She used the money to pay for her wedding, her nails, her new car.
Then she shared the most striking thing: “I asked my uncle to walk me down the aisle on my wedding, and he had no idea his money was paying for the whole wedding.”
Fraud and theft occur in many businesses, but when the crime occurs in a family business, it stings far worse. In this case, she stole $40,000 in six months. Some went up the nose of her cocaine-addicted husband, but the vast majority went to the wedding.
The breach was not just a breaking of the law, but a blow to the family business. It was a business that was based on trust. Family members did not check on family members because, after all, they are family. Sadly, this makes it easier to dip into the family coffers to raid the till.
With no checks and balances, no oversight from a third party, this sort of crime against the family can easily occur.
We would like to think that certain things are sacrosanct, but they are not. Church poor boxes, the red kettle of the Salvation Army and family treasuries should be, but the truth is because of the veil of trust, these thefts are made easier.
Many families in business eschew very simple things that can assist in detecting or preventing these situations: Double signatures on checks, yearly audits, even mandatory vacations of longer than a week for everyone involved in the accounting areas. Crimes can be perpetuated much easier if that person is in the office every day and can catch things before anyone else knows about what just transpired. Signatories should ask questions and should not just blindly sign things. And yes, while an audit is not free, having an independent person, like an accountant, look over your books insures independent oversight and offers reassurance. Better yet, it offers deterrence from robbing the family till.
What makes family businesses so great is being able to trust people because they are blood. When one person succeeds, the whole family succeeds. People work harder when it is for them – for the family. When your name goes on the door, you just care more. That care should extend to watching the family till.
Dr. David Borst is executive director and chief operating officer of the Family Business Legacy Institute, a hub for all things family business related. He can be heard every Saturday at 6:20 a.m. on WTMJ radio’s “All Business.”