Published in the April 15-28, 2015 issue of Morgan Hill Life
By Cherisse White
Cherisse White
Seven years ago, I hired an amazing manager who soon grew to become my right-hand employee and served as the go-to person for my salon business in downtown Morgan Hill. She became an apprentice under my cosmetology license in 2012, which gave her the capability of doing hair services and being paid.
In May 2014, I found a closing report on the front desk from three days prior that should have been filed. Some of the checks in the report should have been deposited, but when I checked our account, I saw they never cleared. That raised a red flag.
From then on, I did more research on our financial reports for credit card, cash and check transactions.
I was shocked to see that for two and half years, she was modifying the daily transactions behind the scenes for her own financial benefit. It was a little bit of money every day, that’s why we didn’t catch it. She would modify the transactions the next day, which is why the closing always balanced on my salon software system. The balance reported was inflated so that she received a higher commission on “phantom money.” Over the period of her criminal activity, she stole about $50,000.
After gathering all the documented proof and processing it in my mind to make sure of the embezzlement fraud, I called the Morgan Hill Police Department and an officer came and interviewed me and looked at the documentation. He made a report, and the Santa Clara County District Attorney’s office followed up with me. The case went to a court hearing.
Ultimately, she went to court in October 2014 and pleaded “no contest,” which in the eyes of the law means “guilty.”
The judge found her guilty of two felony charges and ordered her to pay restitution of $42,000. She was given three years probation and sentenced to six months in jail. She served two months, followed by a RCP program where she was not physically in jail. She technically got out of jail last month.
What did I learn from my experience with her that might help other small businesses in Morgan Hill avoid employee fraud?
One of my most important lessons is to make sure you look on a regular basis at your business books and your bank account/merchant credit card transactions and ensure at the end of the month they match. The second lesson, which would have saved me a lot of grief, is to understand my profit and loss reports so that I could see there was a discrepancy in what was real money coming into my business. Have your professional bookkeeper teach you how to read your P and L.
Your software system is a vital part of defending against fraud. Make sure your system is password protected and change the password about every six months.
I also set up a point of sale software system to send me an email any time a file is modified. If I had had this, I would have been notified of the modifications in the daily transactions and that would have caused me to check sooner.
I also installed surveillance cameras in my business which helps give me and my staff peace of mind. I also make sure my private office is locked when I’m not there. I also had business liability insurance that had a clause called the “employee dishonest act,” which helped me considerably.
I never thought a criminal action by a trusted friend could happen to me.
That’s why I encourage all business owners to consider making sure their system is set up so they have a checks and balances structure on at least a monthly basis so that a warning will rise and you can take action before you become a victim.
Cherisse White is the owner and artistic director of Cherisse’s Hair Salon. She wrote this for Morgan Hill Life.
