Blindsided

Because Sjolseth trusted her, he never questioned her behavior. But after he discovered she had been stealing from him, he recalled that she displayed classic behavior of embezzlers. She never took vacation, and if she did, she only left for a couple of days at a time. She also ate lunch at her desk. She was always there when the mail arrived so that she could keep every record. She appeared to be one of the best employees because she was so dedicated. But she appeared dedicated because she was trying to maintain control and hide the betrayal.

The only foreshadowing of the embezzlement appeared in 1996, when a colleague warned Sjolseth about her. He was a leadership coach who would help conduct quarterly team-building meetings and training sessions at Sjolseth’s shop. This man, Richard Flint, told Sjolseth to watch out for her. Flint observed in her demeanor that she had a wall up, and told him to challenge her and find out if she’s going with him on their company’s journey. He didn’t know she was embezzling, but he suspected something was not right.

“I went up to him later and said, ‘Wow, you were intuitive,’” Sjolseth says.

THE PROBLEM

Sjolseth was dealt a hard emotional blow. He was personally hurt and shocked at how everything unfolded. But he could move on from that easier than the financial impact.

The bookkeeper left a legacy of $80,000 in debt to vendors. Upon analyzing financial records, Sjolseth discovered missing repair order files. She stopped filing repair orders by date and instead filed them alphabetically, which slowed Sjolseth’s ability to track her work. He also found deposit slips for $1,000 and then checked them against bank statements, which showed deposits of $100.

Because of the incredible amount of debt she left, and because they were only able to prove she stole $5,000, Sjolseth knew she took much more than her paper trail showed. He says she could have taken a number of sly actions to steal money. For example, perhaps she told customers to leave checks blank, and instead of stamping them with the company name, maybe she wrote her name in and cashed the checks.

“We could never go back,” he says. “We could never prove what she stole.”

After he fired the bookkeeper, police came in to talk to the staff. They informed employees that she had embezzled from the company, that she had admitted to it, and that she was fired immediately.

Sjolseth then told the staff about the financial burden she left behind.

“The people were pretty stunned,” he says, adding that some felt personally violated. “She didn’t just take money from me and the company, she took from all of us.”

He knew he had to make sure this never happened again.

THE OPTIONS

There was little else Sjolseth could do besides fire his bookkeeper and forge ahead. Police never charged her; stealing $5,000 amounted to a misdemeanor, not a felony, and she gave the money back right away. Sjolseth never pursued a lawsuit because it would be difficult or even impossible to provide evidence.

In moving forward, he thought about his choices. He could have hired a new bookkeeper, or he could clean up the financial mess himself, he thought.

It was such a mess, he says, that it would have been too difficult for a new person to come in and clean it up. Many records such as repair orders, late notices and account balances on credit cards were thrown out. It would take time to connect the dots about missing money, track debt that needed to be paid, and create better financial controls so that he would never be stolen from again. Sjolseth also suspects the bookkeeper had also pocketed checks and cash that came in, and she deleted any paper trail that would have shown the missing money. All of this would have been too much for a new person to walk into, he thought.

He also wanted to stay in control while they dug out of debt. Part of the problem in the first place was that his bookkeeper had been in charge of keeping track of every transaction, every bank account, and every late payment notice from vendors. While Sjolseth knew it was an option to hire someone, he says it was clear that he needed to take the bookkeeping reins.

The plan? Eliminate debt with vendors, with the intention of becoming a profitable business again. Sjolseth, who until that point had not been doing any bookkeeping work at all and had focused his efforts on shop production and management, thought about how they could become profitable again. In his mind, he only had one option in doing this: Pay vendors cash on delivery so that they could stop accumulating more debt.

For example, he owed one vendor $25,000. And that debt piled up under his nose because the bookkeeper had been in charge of every aspect of accounting. Like many embezzlers, she handled every phone call, came in early and stayed late, and rarely went on vacation. That way if vendors complained of a late payment, she could handle it without Sjolseth blinking an eye. He never questioned her because he didn’t know he needed to.

THE DECISION

From there Sjolseth started reviewing all payables and receivables himself. He signed every check that went out and kept track of every check that came in. He made all the deposits and handled all the cash. He examined all repair orders for the shop, which took 15 minutes to half an hour per day. He had bank statements sent to his house, and he carefully looked at each one. He investigated profit and loss statements; he looked for trends and discrepancies, and was sure to ask questions if he had them.

He also worked to eliminate debt and rebuild relationships with vendors. This was tough at times because sometimes parts would be $10, and sometimes they would be $10,000. But he had personal conversations with each vendor, who had previously dealt with the bookkeeper, and they were willing to work with Sjolseth. That meant if parts and materials cost $10,000, they would pay maybe $3,000, and the rest would go on credit.

They rarely did that, though, just so they could dig out of debt as quickly as possible. The sooner they got out of debt, he thought, the sooner they could become profitable and move on from this painful chapter of the business.

He said it was humbling to owe so much money to vendors. But luckily, he says, they understood his situation. The experience made him stronger, and he can now pay all his bills.

“I take an awful lot of pride in being on time with every payment,” he says.

THE AFTERMATH

It took about a year to do it, but the shop was able to eliminate all of its debt. Profit increased 400 percent a year after the bookkeeper was fired, and the next year, he says profit spiked 80 percent.

“It was one of the most rewarding times because we could make money just like everyone else,” he says.

Nine years after firing his old bookkeeper, he hired a new one—a man Sjolseth knows from his church. Sjolseth realized that ultimately he needed to work on his business rather than in it. He also put a lot of controls in place so that he could never be as vulnerable to embezzlement as he had been. For example, he decided to review every deposit, and he still reads all the bank statements that get sent to his house. He still reads all the files, but he no longer handles all of the bookkeeping.

“The reality is that it’s difficult for [the bookkeeper] to steal with all the controls,” Sjolseth says.

THE TAKEAWAY

Sjolseth, his family and his staff moved on. They decided not to dwell on regret and anger, and to instead learn from any mistakes and do the best they can with the business.

Still, he says, for a long time he felt ashamed of the fact that someone had stolen so much money from him. He felt like he should have known better. “If I’d been a little bit sharper at the time, I would have been reviewing everything,” he says.

But the police assured him that even highly educated attorneys have experienced embezzlement.

“It can happen to anyone,” he says.

He learned the importance of putting checks and balances into place, even when someone seems trustworthy.

“Human nature is to trust other people,” he says.

He also learned the importance of diligently examining every single bank statement, and all the receivables and payables. As an owner, it can be boring and tedious, he says. But it’s worth the effort. “You can’t take someone else’s word for it,” he says.

He realized taking such actions is part of running a profitable business—one that is well maintained and offers a great place for people to work. He says he had been in survival mode for a long time and this traumatic event made him think more deeply about his business, and about his role as a leader.

“You learn a lot after you’ve been violated,” he says.