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Matters Of Trust

When an employee embezzles from you, it's no laughing matter.

Like many entrepreneurs, Mike Lacey struggled during the recent recession. As founder of the Hermosa Beach, California, Comedy & Magic Club, the 44-year-old Lacey rode the popularity wave of stand-up comedy in the late 1970s and '80s, only to face dwindling crowds once the economic tide turned against Southern California. But he persevered--thanks in no small part to performing regulars like Jay Leno and a dedicated team of employees working behind the scenes.

"They were really here [for us] during the recession," raves Lacey of his 50 employees. "They pitched in for all the right reasons."

But everything wasn't completely right at the club. "In 1995, we started seeing more bodies come through the door, but we didn't see the money in the bank," says Lacey. "We kept saying, 'We're getting a lot more people, but we don't have the funds to show for it.' "

What was wrong? One of Lacey's trusted employees--a woman who'd been promoted to bookkeeper--was embezzling. "We all did everything we could to keep costs down, and lo and behold, it wasn't that our costs had gone up . . . it was that somebody was embezzling $8,000 to $10,000 a month--sometimes as much as $12,000 or $13,000," says Lacey.

Not that the embezzlement was immediately apparent. "We just started seeing things that didn't make sense," says Lacey. "The explanations for why there wasn't any cash in the bank kept getting stranger. We [knew] something was wrong, so we brought in an accountant [to look at the books]."

Eventually, Lacey's bookkeeper confessed her crime--although, says Lacey, she initially confessed to stealing just $27,700--a sum much lower than the more than $175,000 she has subsequently been convicted of stealing.

"This woman married her high school sweetheart, had three children, went to church every Sunday--she didn't look the part," says Lacey. "And everybody who called me after this happened said the same thing: 'It's almost always the person you'd say would never do it.' "

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This article was originally published in the March 1998 print edition of Entrepreneur with the headline: Matters Of Trust.

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