Trust and verify Both are needed to be secure
Sometimes we forget that a flood is cause by billions of drops of rain. You could replace pennies with raindrops: A flood of a billion lost pennies may devastate your business.
In reviewing a customer’s accounts at year end, we were looking over various expenses. We examined some bills that were received online from a service that has a multitude of charges. Various people over the years had paid the bill without noticing one small item. It was a monthly charge of $95 that was assumed to be for Internet connection to that company.
It was, in fact, a charge for a service that had been canceled years ago. The customer was not happy with the supplier for not canceling the charge, but there is also the reality that the bill should have been checked out every month in detail.
There are dozens of places in your business where you may be paying for services you did not receive or at a rate you did not approve.
If you have a triple net lease, there are almost unlimited opportunities for mischief. Twenty years ago, I was involved in a situation revolving around the high cost of the triple net charges in a lease. For some reason, it occurred to me that the problem might not be with the detailed charges themselves but how they were computed. I went to all the other tenants in the building and asked what share of the triple net they paid. The total was 135 percent. The numbers we were given to support the triple net liability were accurate; they were just the wrong percentage.
In another circumstance, a client’s electrical bills rose significantly when a new tenant was added to the building. After several months of investigation, it was discovered that the new tenant’s electrical supply was being run through the client’s meter.
Constant vigilance is necessary to prevent these types of access charges. One problem I see with automatic charges to credit cards and banks is that people are not vigilant in checking what has been charged to them. If an extraordinarily large amount shows up for a particular vendor, most likely you will catch the error. But what if it's a small charge that goes on for years and you don't notice because it is paid automatically?
A $50 charge on a $10,000 bill that is paid automatically every month has the potential to add up to thousands of dollars over a number of years. When someone has access to your checking account or credit card, it is like giving them a key to your house. You assume they're only going to do what you have asked them to do, but once they're inside, it is up to them to decide.
How many people question the bills they receive from vendors? Some people politely and professionally answer your questions. Other people become defensive and feel you’re questioning their integrity by asking them to validate charges. Sometimes people are very nice but don't answer your question. Sometimes people are rude and give you a direct answer.
What you are looking for is neither rudeness nor strokes. You're simply trying to make sure that what you pay for is what you get.
Another problem is automatic renewals. If you are not vigilant in watching automatic checking account deductions and credit card charges, companies may renew their services without notifying you. I'm sure that somewhere, a year ago, when you initially took the service, there was some sort of note saying that it would automatically renew. What are the chances you would remember that a year later?
Having payments deducted from your checking account or charged to your credit card is an easy way to avoid the tedious task of writing checks, but it does require an increased vigilance in making sure that what comes out of your account is what you intended.
It is hard for people who are, by nature, organized and detail orientated to understand how these situations develop. Often people who are not detail orientated become busy and do not pay close enough attention to detail. Sometimes ignorance is not bliss; it is devastation.
There is a stupid story about a man who works in a factory and leaves every night pushing a wheelbarrow with a cover over it. Security checks the wheelbarrow every night as he leaves. After years of being searched in this way, the employee eventually retires. One of the security guards approaches him and asks him, now that he is retired, if he would please tell him whether he was stealing from the plant. The man answers “Yes.” The security guard asks him how he could've stolen anything with such tight security. The employee says that it was simple. He was stealing wheelbarrows.
Sometimes it is that simple. Usually it is not. We don't like to think of dishonest employees or vendors. There was an old saying from the savings and loan fiasco in the 1970s: “Trust and verify.” That is not “trust or”; it is “trust and.” You have to set aside your trust in your fellow man once in a while and genuinely think about where the holes might be in your system.
As creative as business owners may be, there are people inside and outside their organization who are trying to figure out a way to steal their assets. Trust is a wonderful thing. Trusting in and having verified a supplier or employee can give a sense of security that neither one gives alone.
Paul Hense is president of Hense & Associates PC, a local accounting firm. He also is past chairman of the Small Business Association of Michigan.