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    5 Replies Latest reply on Jan 13, 2009 9:40 AM by jaybird

    Employee writing/deleting false invoices

    jaybird Newbie
      My husband and I own a wholesale nursery. As he is in his early 60s, we are contemplating retirement. For the past year, we have been working on a plan to sell the nursery to a long-time (over 15 yr) employee. Due to the downturn, the employee is backing off from putting money into the firm, and we thought that was fine. No problem holding off 'til the economy improves.

      However, we have discovered something that I think is a very serious issue, not to mention illegal.

      Some background: Credit was approved for a new customer in April, 2008. This was over my objections as the credit manager. There was not sufficient credit history to give him credit. Flash forward to November of this year. The customer is in arrears to us for over $75,000. As the customer was sub-contracting landscape jobs, my husband has been calling the general contractors and has been able to receive payment on $25,000, or the debt would be worse. He continues to call and file liens and we will likely receive much of the payables.

      Upon calling one contractor, my husband was told that our firm had already been paid for the nursery materials. In fact, the contractor said that the check (for over $40,000) had been a two-party check written to our customer and us. The check had been issued because the contractor had received an invoice from our company. The invoice number sounded like one of ours, but was nowhere to be found in our software system. Our long-time employee had produced an invoice with more, higher priced merchandise than we had supplied. We were not aware of this. He also signed his name on behalf of our company on the check. (He has check signing authority.) He never asked us if this was alright, and he never told his this happened. According to our employee, the customer wrote us a check for part of the amount owed, and used the rest for other uses. My husband believes that our employee made an honest error in judgement. I however, am not convinced. Even if it was an honest judgement error, it is unethical, not to mention illegal. He committed fraud. He says he has never done this before.

      Needless to say, we are no longer considering selling the company to this employee. In any other company, I believe he would be fired. Am I correct? At the very least, he should receive some form of unpaid suspension. I feel there should be a signed statement from him acknowledging this behavior in his file. My husband feels that we can't survive without him managing our re-wholesale facility, but all of my trust in this employee is shattered. It doesn't look as though the contractor will take action against the employee (or us), buty we are out the rest of the money owed on the job.

      Any thoughts?
        • Re: Employee writing/deleting false invoices
          Iwrite Pioneer
          It is time to look at your practices and develop safe guards to prevent this from happening again. Before firing this person, I would get with your accountant and do some research, this type of activity will leave a trail. Make sure there isn't any other situation you are not aware of.

          Now for the employee, there have to be repercussions to this action. I suggest waiting until you have all the facts. You can take away his check signing privileges, I would. A lot depends on what you discover with your accountant. I would start there. Also consult your lawyer.
          • Re: Employee writing/deleting false invoices
            Lighthouse24 Ranger
            I concur with Iwrite. It sounds as though your system almost invites employee fraud, so you may have even deeper problems than you realize (though I hope not). I'd advise some "forensic accounting" immediately. As for employee discipline, what you can do (or what other companies would do) will depend on whether or not you can show that employee committed an illegal act. If he did, you can probably fire him and turn the matter over to law enforcement. If he didn't, then the action you can take will depend on the size of your firm, where it is located (state and local jurisdiction), and possibly some things that have to do with employee (age, race, veteran status, etc.) -- an employment attorney (who specializes in representing employers) will be able to advise you best there. Good luck.
              • Re: Employee writing/deleting false invoices
                Iwrite Pioneer
                Until you know everything, restrict the employee's access to funds and banking accounts. This is very important.

                I have dealt with two cases of embezzlement in my career and both times, once the accounting was done people were in shock at the amounts. One manager of a major food chain stole over 10 years had taken close to $370,000. The COO of an agency I was working for took between 8 and 11 million dollars, depending on who you ask.

                I am not saying your employee is a thief. I hope he isn't. Be careful with accusations, in some states it can cost you. So can firing even a stealing employee.

                Good luck
              • Re: Employee writing/deleting false invoices
                tonycpa Newbie

                You do have a very serious situation on your hands. All businesses need to have a system of internal controls to provide for checks and balances in an effort to minimize errors and prevent employee theft. It appears that your business lacks those controls with respect to this employee.

                I am a CPA and have been doing forensic accountings for more years than I want to admit to. The possible scenarios here are endless. It is natural to want to give a long-term employee the benefit of the doubt and you should.

                The employee may have seen himself as the "owner-elect" and overstepped his authority. He may have tried to cover innocent errors or omissions. He may have realized his decision to grant credit was not his best decision and tried to fix it. Then again, it would not be the first time a long-term trusted employee was caught stealing.

                Giving this employee the level of control he has over your company's assets was a poor business decision. Please don't compound it by refusing to investigate further. There are very few legitimate reasons for the types of activities going on. My gut tells me this will not end pretty.

                I strongly suggest you talk to you accountant and attorney ASAP.
                  • Re: Employee writing/deleting false invoices
                    jaybird Newbie
                    Thank you for your advice..... Actually, the employee did not give credit to the customer on his own. My husband and I, along with the employee, met as a committee to grant credit. I was overruled by the two. Since then, we have had a few slow, new customers. As a result, I am the final and only credit decison-maker, as I tend to be more cautious. We are a small, family-owned business -- not a bank. We shouldn't have to dip into our credit line because customers are slow pay..... (But that's a different issue!)

                    As a first step, I will look into removing this employee as a check signer. We are also looking into installing cameras over our computers and out in our re-wholesale yard.