Are You Teaching Your Employees to Steal? (Part 1)

 

My Employees Wouldn’t Embezzle: Yeah, Right

 

Yes or No - Have you taught your employees to embezzle?

 

"Yes" is the right answer.

Here’s a typical situation: You have an employee working out of town for several weeks. One evening, she has dinner and returns to the hotel room. Flipping through the TV channels, she watches a movie. What’s on the hotel bill when she checks out the next day? $5. For what? A pay-per-view movie. The employee submits her expense report for the week. The hotel bill is $500. What does your accounts payable clerk do? She crosses off the $5 movie charge and reimburses the employee $495 for the hotel bill. Why? Because movies are a personal expense and against company policy.

What does the traveling employee do on the following week’s expense report? Records a fake charge—for how much? Not $5. Maybe $15, $20, or more (revenge—the employee is mad) for a taxi, meal, or any expense under the maximum that doesn’t require a receipt. What’s the employee thinking? "I’m out here working my butt off—10 or 12 hours a day. I’m earning this company three times my salary of $65,000. I’m missing my kids’ soccer games and parent-teacher meetings. And some $12-an-hour A/P clerk dings me for five bucks? She’s home sleeping in her own bed, giving her kids hugs and good-night kisses."

What did you do in that two-week period? You taught the employee that in order to be treated fairly, she has to cheat — to embezzle. The following week’s expense report complied with the company policy, but the policy "drives" employees to behave in a manner you don’t want. Not only does the employee resent the way she was treated, but her productivity drops while she’s plotting how to get repaid. Result: Your loss is much greater than $5. But since lost productivity isn’t explicitly measurable, you don’t even know it.

WHAT ARE EXPENSE REPORTS?

How would you like to get rid of an entire process on which you spend a ton of time but doesn’t earn the company a dime and also causes other employees to call you "bean counters"?

Question: What are expense reports?
Answer: A complete waste of time.

Let me give you a personal example. I have a speakers bureau for white-collar criminals called "The Pros & The Cons." My ex-con speakers have committed frauds of up to $350 million. We’re on the road a lot, so travel expenses are significant. To make their lives easier, I charge their plane fare and hotel room and tax to my American Express card (so I get the frequent flyer miles). The first year I reimbursed their miscellaneous travel expenses. They had to prepare a report. We had to foot, cross-foot, look at receipts, and finally write a check two or three weeks later. It was very time consuming and didn’t make me any money. I realized reviewing expense reports was a complete waste of my time, and I wanted out of the "control business."

I analyzed this process and found that miscellaneous travel expenses (meals, tips, taxis, and so on) ran about $75 to $80 per day. So I told all my speakers that we would give them $100 per day for miscellaneous travel expenses. When I reimbursed their expenses, they would take a taxi from the airport to the hotel for $30 and have dinner at the hotel for $45. Now that they get $100 per day for these expenses, they take a $12 shuttle to the hotel. And where do you think they have dinner? At McDonalds. And here’s the best part. I don’t care how they get from the airport to the hotel or where or what they have for dinner. And my ex-cons love it. I can pay them as soon as they are done. No more filling out an expense report, then waiting two or three weeks for the check. (Ex-cons have significant cash-flow issues.)

The $100 per day is included in the Form 1099-MISC each year. It’s up to the speakers to save their receipts for tax purposes. There’s no magic about $100 per day. Nor does the daily reimbursement have to be the same for the entire country. It can vary by how expensive the area/city is. Notice what has happened: My speakers get paid faster, with significantly less work on both our parts. Since they eat and travel cheaper, they make more without increasing my cost. It’s a win-win structure. But when employees get both a W-2 and 1099—something independent contractors don’t have to worry about—the situation becomes more complex. Consult a tax expert.

Go to Part 2 of "Are You Teaching Your Employees to Steal?"

Gary Zeune, CPA, is CEO of "The Pros & The Cons," the only speakers bureau in the U.S. for white-collar criminals. His books include The CEO’s Complete Guide to Committing Frauds, Outside the Box Performance: How to Beat Your Competitors’ Brains Out, and over 35 articles on fraud and performance measures in national publications. Gary teaches fraud classes for the FBI, the U.S. Attorney, over 30 state and national CPA societies, and numerous banks and accounting firms. You can reach him at gzfraud@bigfoot.com or 614-761-8911, or visit www.bigfoot.com/~gzfraud.

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