Why do business owners work so hard?
Photo Credit: Vladimir Kudinov. Source: Unsplash
One reason is to prevent fraud. Restaurants or gas stations or convenience stores do a lot of cash business. It can be pretty easy for an employee to skim a little “off-the-top” when ringing up receipts. Modern cash registers make this more difficult—even more significant has been the shift to debit and credit cards for even minor transactions.
More common is when employees give merchandise away: waiters and waitresses who don’t charge for refills; gas station operators who hand out items—usually to their friends. One young man in high school got a job working at a frozen yogurt shop precisely because he was unpopular. The owner was tired of losing inventory every time the cool kids came by. His un-cool employee was less likely to give free scoops for his un-friends.
It’s estimated that employee theft costs business owners over $20 billion per year. Before source-tagging and video monitoring, the best way for business owners to prevent theft and fraud was for them to be on-site, keeping an eye on things.
Because people do what you inspect far more than what you expect. It’s human nature for folks to try to work the system and get a little more for themselves—so we have detailed systems of accounting and audits. But the best defense against fraud is being there. As Yogi Berra once noted, “You can observe a lot just by watching.”
Douglas R. Tengdin, CFA
Chief Investment Officer