In an unstable economy, business owners face more than just a decrease in customers; they face an increase in the number of people willing to do whatever it takes to make money. Enter the saboteur, someone willing to con, scam, steal or sue at the expense of your business.
From reviewing your books regularly to watching surveillance tapes, it's imperative now more than ever that you protect what you've worked so long and hard to build--your business.
Sometimes, the saboteur is right under your nose, as Ric Heffernan, general manager of Winslow Aluminum in Vassalboro, Maine, can attest to. Heffernan had two partners who were nearing retirement. They hired a bookkeeper who happened to be the daughter of one partner and niece of the other. Little did they know, the bond of family trust would be broken to the tune of more than $750,000. It was only once they brought in consultants to appraise the value of the business that the bookkeeper's "discrepancies" were discovered.
"The consultants asked me, 'Where's the money'? At first I didn't know what they were talking about," Heffernan says. "Then they showed me some recent invoices that had not been paid, some of which were six months past due." He quickly realized that the bookkeeper had fake books showing invoices paid, while she was instead making out the checks to herself. Additionally, she had thrown out all statements, bills and invoices.
In the end, while her father didn't want to pursue the case, Heffernan did, and
now she's serving jail time for taking what amounts to nearly $4,000 a week from her family's company for almost five years.
While Heffernan admits he felt stupid for allowing this to happen, like most business owners, there's a level of trust, especially when it comes to family. In this case, however, the real trust came from loyal customers, vendors and others who were supportive and continued to do business with the 35-year-old aluminum company.
"You need to have a system of checks and balances, even in a family-owned and -run business," says Heffernan, who learned the hard way, but has moved on and seen the company continue to thrive.
Jay Myers, founder, president and CEO of Interactive Solutions, based in Memphis, Tenn., was also the victim of an inside job. Not only did Meyers go full force to land the perpetrator in jail, but he also wrote a book about the story. The situation still distresses him today, some five years later.
"We hired an account manager in early 2002 who ended up stealing over $250,000 from us, along with the receptionist, whom I later learned was her daughter," says Myers, who, at the time, was in the process of building his business. Myers says the unexpected death of his older brother is what caused him to stop paying attention to the business. "I was having a hard time just coming into the office and couldn't cope with anything. She took advantage of the situation, wrote checks to herself and even used a rubber stamp to forge my signature," Myers adds.
Once Myers caught on, he put together a team that included a certified fraud examiner and a member of the Secret Service. With their help, the account manager ended up in prison.
To tell his story, warn others, and achieve personal catharsis, Myers penned the book Keep Swinging,about the woman who nearly destroyed his business and how he bounced back from adversity to build what is now a $15 million company.
Myers highly recommends doing both criminal and civil background checks before hiring anyone. He also recommends making sure everyone takes a vacation. This ensures that another set of eyes opens the invoices and looks over the books.
While some businesses are hit from the inside, others face saboteurs with elaborate plans from the outside. Don Wilkie, of Port Huron, Mich., who, for 14 years co-owned a nightclub, called The Huron Athletic Club with his brother Bob and a third partner, never could have dreamt up the plot that was perpetrated against their business.
The perpetrators' idea was to stage a fight at the dance club, with two planted witnesses on hand, one inside the club and one outside. The fighters would be thrown out and claim bodily harm on the part of the club security. The evening of the staged fight, however, turned out to be a bit more than the saboteurs or the club owner had bargained for.
"Before they initiated the fake fight, another patron, who was harassing the disc jockey, was escorted out of the club along with his girlfriend. The girlfriend, now furious, threw off her coat and kicked the glass out of our front door," Wilkie says. "When the guys from the fake fight, which took place on the dance floor, were brought out, one was laid down on her coat. Upon seeing this, the still irate woman kicked the fake fighter, causing him some unexpected very real injuries, including a broken jaw." Wilkie acknowledges the story sounds like a Hollywood script.
Still determined to sue him, the scammers decided that this would make their case even stronger, now claiming that while evicting one of the fighters, they rammed his head into the door, breaking the glass and injuring him while throwing him to the ground. To make matters worse, the police detective on the case wrote all this up in her report.
Wilkie, however, turned detective once his insurance agent pointed out that the surveillance tape showed only the first patron being escorted out, and not the fighters. In fact, as proven later on by Wilkie with the help of a video expert, the rest of the tape, which was in police custody, had been erased. At this point, other loopholes began to appear in the case before it went to court. Wilkie, who went on to dismantle the story, even proved that the detective was part of the scam.
"I showed that she had written up her report prior to interviewing the witnesses. What were the odds that two witnesses, one inside and one outside, and a police detective, before talking to any witnesses, would come up with the exact same story? Not very likely," adds Wilkie, who won the criminal case. The civil case was then dismissed when none of the participants in the scam showed up. Nonetheless, it still cost Wilkie $60,000 in court costs.
In the end, Wilkie, who sold the club two years later, says it's important not only to have your surveillance cameras on, but also to make sure you watch the tapes if anything unusual occurs.
These entrepreneurs learned the hard way that not everyone has their best interests at heart. Despite the underhanded tactics they faced, they managed to keep thriving businesses. What they learned can serve as a lesson to other entrepreneurs: Mandate a system of checks and balances, keep a wary eye on accounting discrepancies in your business and know who you're working with.
Rich Mintzer is a journalist and author of more than 50 nonfiction books, including several on starting a business. He hails from Westchester, New York, where he lives with his family.