I Caught My Employee Stealing. What Should I Do?

Employee Theft Discovery00:00

Caller recently caught one of their main employees skimming off the top and stealing from the business. The employee is replaceable but would be a huge operational hit. The theft amount is described as small and not enough to ruin the company. The business is in the process of being sold.

Long-Term Perspective on Honesty01:01

When looking back at age 85, the priority should be having been honest. Knowing about theft and failing to disclose it exposes the seller to liability. Reps and warranties in the sale become flipped once knowledge is demonstrated. The buyer could sue for knowingly transferring an organization with undisclosed liability.

Framing the Disclosure to Buyers01:33

Frame the situation by acknowledging the business involves some nefarious characters while emphasizing profitability. State: the business is slightly more profitable than previously disclosed, the existing price will be honored, and one person must be replaced due to skimming. Be upfront, state the facts, and tell the truth. This approach is unlikely to blow up the sale.

Caller's Prior Actions02:01

The caller already spoke to the employee, reached a middle ground, did not request any money back, and changed processes moving forward. The response is that the employee should be removed because they stole.

Ozark Story Illustration02:30

A Drug Lord discovered accountants skimming. He told a story about Lupita, a beloved grocery store employee caught pocketing a $5 bill. When asked what to do, responses varied from "it's just $5" to situational excuses. The correct answer given was to fire her because it was not the first time she stole, it was the first time she was caught.

Signal to Team and Self04:32

Allowing theft sends the wrong signal to the team and to oneself. There is no justification for keeping someone who stole, whether the amount is $100 or $10,000.

Inherited Business Context04:32

The business was inherited, which is one reason for selling. Skimming was the status quo and accepted practice. Pushback occurred when trying to change this culture. The caller questioned how much to push back versus remain lenient while preparing for sale.

Reputation and Future Deals05:30

Reputation is defended with life because future acquirers will contact previous buyers. State the facts, tell the truth, and be upfront. This will not blow the deal and puts things on the right footing. The decision is described as an ethics call rather than purely a business call.

Full Disclosure Approach06:01

When disclosing to the buyer, state the whole facts and whole truth rather than half-truths. Example framing: there was internal debate about bringing it up, the employee (Paul) was caught pocketing $200, he was let go because integrity does not allow representing something false, operations should not be affected, and profit may actually increase by removing the issue. This demonstrates the type of person the buyer is dealing with and validates that disclosed numbers are accurate.

Buyer Perspective07:30

A buyer would respect the seller for bringing the issue forward. Buyers expect skeletons and value transparency about what the numbers actually represent.

Values Over Business Calculations08:03

This situation is an ethical dilemma that reveals what type of business person and reputation one wants to have. It is a values question more than a business question.

Outcome and Reflection08:03

The caller confirmed this happened one week prior. The speaker noted the caller will always be proud of how they acted. The business is solid enough to have attracted a buyer. If the current deal falls through, another buyer can be found while improving the business and potentially achieving a higher multiple.