| Recently I was contacted by a Spa Owner (let’s call her Jane) that was a victim of fraud and embezzlement. It seems that for eight and a half years one of her most trusted and valued employees (let’s call her Sue) had been stealing monies and covering her tracks DAILY.
If you are asking “how did she do it, and how did she get away with it for so long” then read on, because those are the same questions I had…
Firstly, our thief Sue stole more than $200 of cash, products, gift cards, and services almost every day she worked for over 8 years. This number was small enough each day that it was unnoticed, but when added up was quite substantial!
Sue eventually got caught and admitted what she had done and how she did it in her written confession. Jane also had a forensic accountant try to reconstruct how the crimes were committed and how much was taken. I have been given the privilege to read and analyze these documents for the purpose of writing this article and Jane hopes that YOUR business might be spared of the nightmare that she has encountered.
Even though Jane was armed with the report from the accountant and the confession from Sue she had a difficult time getting Law Enforcement and the District Attorney’s office to file criminal charges and prosecute. And even though she might win a civil lawsuit it would be expensive and hard to collect.
There were obvious things that Jane did that probably go on in most every spa (or business) in the country like taking products home without paying for them, having services without paying for them or drastically discounting them, charging customer full price but using a discount code when ringing up the sale and pocketing the difference.
But Sue went much further than that, in fact she had it down to a science just how to “cook the books” each day so that no one would know.
Gift Cards:
Sue was able to do much of her theft by manipulating Gift Card sales and values. She could find old gift cards unlikely to be redeemed to pay for one of today’s cash sales and pocket the cash. She could sell a $100 gift card for a discounted price (on the books) and pocket the difference. She could “reload” value onto a gift card and then use that gift card to pay for a client’s service and pocket the cash. She could sell a gift card for cash and then void it after the client leaves and put the money in her pocket. She could make comp gift cards for charities and then either sell them at full value or use them to pay for today’s clients and pocket the cash. She could also use these gift cards as gifts for friends or to barter for goods and services elsewhere.
Packages:
When Sue sold a new package of services she would simply reloaded the old package and pocket cash. She also used fraudulent packages she created, or old packages that were unlikely to be used, to pay for services that regular clients had and pocket the cash.
Voids:
Sue voided thousands of dollars worth of services, products, packages, and account payments and pocketed the cash. She also “edited” these types of transactions to pocket a portion of a sale instead of the whole sale.
Refunds:
Sue refunded client sales (unbeknownst to the client) for cash even though the client paid by credit and put that refund in her own pocket. She would also make refund to fraudulent client accounts (perhaps in order to avoid getting caught).
Client Accounts:
She used fraudulent client accounts to pay for services so that she could pocket the cash. She used the owner’s account to pay for client’s services when she could get away with it. Used client accounts to pay out tips and cash backs so that she could pocket the cash. Sue would void client payments to their client account and then pocket the cash.
Editing Transactions:
Sue used editing even more extensively than voiding transactions to pocket cash. It is my guess that she would edit out the product portion of the sale or account payments, etc to add value to the cash drawer that she could then pilfer.
Payment Type Other:
She would use payment type “other” to pay for sales and then pocket the cash.
Petty Cash:
She would alter the petty cash log to add cash to the register that she could then steal.
Donations:
When the spa would collect for a charitable event, monies went to Sue.
Opening Cash:
She would alter the opening cash amount in her register report to give her a plentiful stash of cash from which to steal.
Altering Reports and Activity Logs:
With help from her husband who was the IT guy that the spa used, Sue was able to cover her tracks, give herself administrative access, access to the system from home, encrypt data, steal data, and destroy backups (essentially to cover her tracks).
Because Sue was able to make sure that every daily reconciliation reports showed no shortage the bookkeeper never suspected any wrong doing, and Jane thought she had a model employee that she could trust.
Sue’s own written confession tells (almost trying to sound noble) that she always made sure that employees got paid for the services they rendered; she never stole more than $500 in one day, and never cashed or deposited a client’s check.
The hundreds of thousands of dollars that Sue stole from Jane’s business is devastating indeed, but the years of trust that were violated is just as demoralizing. How will Jane ever be able to trust anyone else that she puts at the front desk?
There are lessons here, and some are obvious. We must be vigilant, we must check and double check, we must be more involved. But some lessons are less obvious, for example we must work with our software vendors:
- When buying our spa software we must not only look at the ease of use, and marketing capabilities, etc, we must also drill down to make sure that the software is secure and addresses these various ways of stealing.
- Make sure we have the most up to date software versions so that we have the highest security possible.
- Work with our software vendors to make their product even more secure, call them when you find that someone has hacked, or stolen from you so that they can help plug that hole in their (yours too) system.
- Turn on all security and alarm features and get full use of these features
- Change passwords and check everyone’s security levels frequently
Jane’s business and confidence are severely shaken. She has legal and investigative expenses on top of the losses her business had already sustained, and little recourse but to retrench and rebuild. She asks me to please make sure that you are more vigilant than she was, and even when you trust staff members (even family members) you must go to extraordinary lengths to audit and “verify” to make sure that you are not getting ripped off.
It is hard enough to make money in this business as a spa owner with all the sales accounted for, don’t let theft or fraud make your job impossible!
I am sure Jane is not the only one with stories about theft in their spa. If you would like to write to me and share your story and diabolical schemes that you have found please do at [email protected] . I would love to here commentary from software vendors as well telling us what they are doing to prevent fraud, what we should do, and what they have learned over the years.
Best Wishes & Healthy Profits
Skip Williams |
