Richard Sinclair

When his bookkeeper failed to show up for work for a few days in a row, it didn’t take long for Richard Sinclair to suspect something was amiss.

A former MANA Board member, Sinclair heads Applied Process Equipment, Scottsdale, Arizona. While still an eight-person rep firm and a “budding” manufacturer, the company is also a distributor of pumps, tanks and water and wastewater treatment equipment servicing the southwest United States.

As he looks back at what turned out to be an unfortunate experience, Sinclair notes that “Over my close to 30 years as a rep, I’ve employed a number of bookkeepers. The person in question here was just finishing her third year with us.

“She had spent several years working for the military and she was very skilled in what she did. In addition to bookkeeping, she handled purchasing, was a shipping clerk, and kept an eye on our debt position. She provided daily financial reports, knew how we closed business every day and was aware of who had been paid. I’d say she knew everything about all our accounts. Whenever we needed some parts overnight, she was a dream come true. On top of all that, she could make QuickBooks tap dance. She was ideal.”

Then came June of last year. “While she was still getting her job done, we noticed that she was less than a happy person. There was no single display that let us know something was wrong, but she just wasn’t the same person. Occasionally we’d hear things such as ‘I’ve got to get my life together,’ but that was about it.”

Flash forward to Thanksgiving a year ago and the bookkeeper asked if she could take off the Monday and Tuesday after the holiday. “When Wednesday came and she still hadn’t shown up, we called her home and spoke to her daughter who said she’ll be in next Monday. Then Monday came and another no-show.”

Discovering Problems

In the meantime, since the bookkeeper was so involved in so many functions for the agency, orders began to back up. “My wife and I decided we had better take a look and dig into what was happening. Well, in short order we discovered we owed late payroll taxes to the IRS even though we knew that we always had the money to take care of taxes. That was the first sign something was really wrong.

“We learned that she was regularly paying taxes late which resulted in penalties. Then we learned that the lease payment for our fork lift was also regularly being paid late. It was almost as if it was intentional.

“While she never took any money herself, in the end we had accrued late penalties in excess of $15,000. I don’t know if she was mad at us or hated us, but we had a problem.”

To make matters worse, according to Sinclair, the company’s inventory had grown tremendously, receipts had been misapplied, and some orders had been shipped but not invoiced. “Since we also do a considerable amount of buy-sell business, the ramifications were likely worse for us than they might be for a true rep firm. All this stuff that we found was sitting off the radar and we were unaware there was a problem.”

Second Quarter Recovery

By mid-December Sinclair says he was spending virtually every day in the bookkeeper’s chair trying to keep up with orders, invoices and everything else. “In addition, we’ve spent a lot of money with a CPA assistant to help us clean up what has become a real nightmare. At this point, I’d say we’ve largely recovered although our first quarter results were off considerably. By the second quarter we were able to catch up. But looking back we went through a good three months that seriously detracted from my key sales efforts.”

Despite the negative results of the bookkeeper’s action that Sinclair and his agency are still dealing with, he emphasizes there has been some light at the end of this tunnel. “We hired a company at the end of our building to install LED lighting in our warehouse. One of their employees volunteered to come over on Saturdays and give us a hand with our problem. As luck would have it, the company cut her hours and we benefited by being able to take her on.”

Corrective Action

As he looks back over what happened to him and the agency, Sinclair says “In hindsight I don’t know if we could have really done anything differently. None of the problems were brought to our attention. We weren’t getting any notices from the bank about the fork lift and to our knowledge taxes were being paid. That’s the scary thing. I guess if anything, I could have started coming in over the weekends and looking at what’s on everyone’s desk. But that’s hardly feasible.”

One change that has been made is that Sinclair’s wife, Margaret, now collects all the mail on a daily basis. “That low-tech approach lets us keep up with any important notices.”

He adds, however, that “Now that we continue to recover from that terrible experience, I can look back and point out how dangerous an under-performing employee can be.”

In terms of lessons learned, he says “I don’t think you can ever do too much background checking on a key person who is privy to your accounting procedures. Sure, you always worry about a new salesman who has access to your database, but turning someone loose in QuickBooks, that is something sacred. I guess if anything I’d remind others that cash and cash flow are kings. You have to do everything you can to protect and scrutinize where every dollar is going. That’s simply a fundamental of business.”

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