James is 47. He and his stay-at-home wife have two children. Previous owner of a successful IT business, James felt he had the world in his hands.

Then, one day that world fell apart. James was on his way to the office one morning and was blind-sided by a drunk driver without insurance or assets. Putting aside all of the gory details and expenses, James is now unable to function by himself.

He thought he had planned well. He had his business incorporated. That business was providing a handsome income. He had a key employee he was grooming to be a partner who had made a commitment to buy into his business and purchase it one day. He had some life insurance and some investments. His world seemed to be set - - until that fateful day.

Multiple studies confirm that most folks will face at least a temporary disability sometime during their lifetimes. Most indicate that one in three Americans will be disabled for at least 90 days during their lifetimes. Statistics show that up to 44% of Americans will face a disability of up to 4.7 years. Statistics also indicate that we are more likely to become disabled than die in any given years.

According to the 2000 National Home and Hospice Care Survey conducted by the Centers for Disease Controls' National Center for Health Statistics, more than 1.3 million Americans received long-term home health care services during 2000 (the most recent this information was available). Given the baby-boomer surge and increasing longevity of our population, the statistic is predicted to balloon during the next few years.

James is one of these statistics. But he's a person, not just a statistic. What happened to him affected many people whom he touched. His immediate family, his extended family, his employees, his company - - all were greatly affected by his changed life.

James had not planned for a disability. He had planned, although not to the extent he should have, for his death. He had successfully planned for college educations for his two children. He had even begun planning for a retirement. But he had not planned properly for his personal life or his business.

He was certain that his business would always provide a good income for himself and his family. He was certain that "one day" he'd be able to sell the business and use the significant proceeds to provide some of his retirement income. But, without his leadership, the business could not continue to provide the income. That "one day" he could sell his business for "significant proceeds" might never come. He didn't plan to become disabled. Nor did he plan for a potential disability.

James never really thought about the potential of becoming disabled. Most of us don't. Such problems always happen to other people. He thought that, if the business was providing such a good income, he didn't need the disability income insurance that his financial planner had recommended. Now his family was without an income from the business. His wife was forced to enter the working world without previous experience to help provide the family's income.

The company had provided a lucrative income to James and his family. It was to be a substantial part of his retirement plan. But with his disability, James was unable to provide leadership for his company. His key employee was progressing, but he didn't yet have the proper skill-set to run the company. Nor did he currently have the funding to purchase the company. James had not created a written exit strategy. He hadn't set up a written agreement with his key employee. Nor had he established a funding plan to protect the value of the business.

His competitors knew what had happened though. They knew that the company was in trouble without James' leadership, relationships, and connections. His company finally sold at a "fire sale price" - - a mere pittance of its true value.

Now James' family is struggling. He hadn't planned properly. Statistics indicate he should have. He didn't.

Are you James?

CFO of local National Kidney Foundation chapter said to have taken more than $175,000 from chapter! Executive assistant for a Chesterfield car dealership charged with taking more than $500,000! This is just a snippet of what we have seen in the local Richmond newspaper in the past few months.

According to a survey by Auditors Inc., as many as 40% of small businesses have been embezzlement victims. But it can be hard to track; only 2% report the crime. Apparently, business owners are embarrassed and worry that creditors will deny loans in the future if word gets out. Some estimates indicate that more than $400 billion is stolen annually.

Small businesses and small organizations are more vulnerable to embezzlement because often a single person has access to, or control over, many business activities like writing checks, making deposits, reconciling the monthly bank statement, and writing payroll or tax checks. Personally, as the former owner of a payroll company, I have witnessed numerous instances of my past clients' employees giving themselves a "pay raise" that, only later, an owner discovers.

Why are there so many instances of employee embezzlement, particularly in the small business sector?


A study conducted by the accounting firm of KPMG Peat Marwick identified three key factors that determine whether a person will commit fraud. These factors are:

Situational Pressures
An employee may be under pressure due to excess debt, job frustration, etc. Often employees feel that they are unable to share these problems with their family or co-workers.

Opportunities
An employee's opportunity to commit fraud generally increases as responsibilities increase, especially when there are not sufficient internal controls in place.

Personal Integrity
This is probably the single most important factor! A person intent on committing fraud can often succeed even in a well managed environment. Conversely, a person with strong moral values will probably not commit fraud, even when faced with situational pressures and the opportunity to do so.

So, the problem is serious and pervasive. What can you, the business owner, do to protect yourself? Although there are many answers and steps that you can take, they fall into only three major areas:

Know Who You Are Hiring
Ironically, most employers fail to do even minimum background checks. Further, typically only large companies perform background checks on prospective employees even though such checks are now extremely affordable and quick. If you aren't performing background checks today, contact us for assistance in doing so. Additionally, consider using a testing service to screen for attitudes about honesty in the work place. One of our Strategic Partners, Charles Wood www.attributesforsuccess.com has a very easy to administer test that costs only $25!

Have Control Procedures In Places
Take steps to prevent a single person from accessing your bank account, as well as paying vendors and processing receivables. Some basic examples are:

1. Have one person receive payments and have a different person authorize payments.
2. If you receive cash, have two people responsible for receiving and counting the cash and signing off.
3. Have your bank statements mailed directly to your accounting service for reconciliation. Make sure that you receive a report of that reconciliation.
4. Consider using an outsource service to handle billing and payables.

Work with your CPA to create a set of written procedures that clearly defines the processes and fully delineates employee responsibilities, in order to provide both enforceable internal controls and separation of duties.

Follow Those Procedures!
A sure sign of potential problems is when an employee consistently fails to follow established procedure. Make sure that you have a check off mechanism for the critical activities that show "who did what when". Again, if you need assistance, please call on your CPA to help create such control procedures.

In summary, think about why you are working so hard in your business. You want to make money! But, money made is not the same as money kept. If you don't participate in the oversight of the control procedures, you might just discover (only too late) that you have been making money for someone else.