Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Trust but Verify

Ronald Reagan used to say “trust but verify.”  He used the phrase frequently when referring to U.S. relations with the Soviet Union but it can be applicable to the business world as well.  Business owners and managers need to put a certain amount of trust in their employees.  That doesn’t mean blind trust without verification and controls.  It means trusting that they will do the jobs they were hired to do in an appropriate and professional manner.  It also means having proper controls in place to verify that they are not doing something that could hurt the business. 

Small business owners and management in small non-profit organizations often feel that their employees would never steal from them.  Some owners don’t think they have enough worth stealing.  Some develop a sense of family with their employees resulting in a higher level of trust.  Others just don’t think they have the time or resources to invest in the controls to prevent fraud.  What they fail to see is that any amount of theft can be detrimental to a business or organization. 

It doesn’t have to cost a lot to deter fraud.  Owners and managers should recognize where the risks exist in their organizations.  Then they should consider the best approach to mitigate those risks.  Pre-employment screening for personnel in higher risk positions could be implemented.  Mandatory vacations or job sharing are low cost options.  A practice of having bank statements mailed to the owners home address for his/her review monthly doesn’t take a lot of time but could prevent someone from diverting funds.

Owners and managers should not stick their heads in the sand and blindly trust their employees.  An employee who knows the likelihood of getting caught is slim is much more likely to commit a crime than one who believes the chances of getting caught are high.  The perception of detection is sometimes all that is needed to prevent an unfortunate occurrence.

For a real life case study, see my article here.

Melissa Loughlin-Sines