Michael Kinsey, who has built his company, Kinsey Engineering, from scratch over thirty years, has just such a war story to tell.
One pay-day about three years ago, Kinsey received the horrifying news that there was not enough cash in the bank for his thirty employees and that his administrator, a woman whom he had known since childhood, had not come in to work. She arrived a few days later to explain she had been taking money from the business.
It says something about the 56-year-old business owner that his first priority was to get his staff paid. “Fortunately I had some insurance policies which I cashed in,” says Kinsey, a fitter-and-turner who built his business around serving mainly the agricultural and forestry community of Richmond in KwaZulu-Natal with tailor-made truck bodies, trailers and fire-truck conversions.
Over the next long days, weeks and months the true extent of the administrator’s fraud emerged. She had diverted no less than R4.6 million into her own account, where she skimmed off increasing amounts. She had gained control over the bank’s SMS alerts that normally go to the owner.
The crux of the problem was that Kinsey’s accountant worked through the administrator, as did Kinsey himself, so that she could intercept and manipulate their messages to each other.
Worst of all, pension deductions from the staff’s salaries and wages were not paid over to the provident fund, the business owed huge amounts to the tax man, and the company’s accounts at its suppliers were heavily in arrears.
Kinsey knew he was in for an epic fight for the survival of his business, but the thought of going the easier way of shutting down everything and starting from scratch did not cross his mind. Today, he can proudly say that he did not retrench a single employee nor missed a pay-day throughout the crisis. “I just decided to put my head down and get it right. I was not prepared to just close up shop after all these years. Some of my workers have been with me for 28, 26 years,” he says.
His strategy was to provide total transparency to all his creditors. “I went to all of them and explained what had happened. I have been dealing with my creditors for nearly 30 years and they know me well.”
Only two out of about twenty of Kinsey’s suppliers handed the company over for debt collection, and he managed to pay off all the accounts. It is testimony to the huge amount of trust capital that Kinsey had been able to build up over the years of running his business. The tax man was just as supportive, and waived “a huge amount” of penalties and interest to help Kinsey Engineering survive the crisis.
Kinsey could not afford specialist lawyers or accountants to help him work out exactly how much money he could try to claim from the perpetrator, who was subsequently caught. An auditor friend showed Kinsey and his wife Janet the basic steps in conducting a forensic audit. Janet, who had previously run the company’s books, set about trying to make sense of it all.
With the help of the Police, they eventually decided to press charges relating only to the more than 700 occasions in which she paid company money directly into her account, because they were the easiest to prove. Today the fraudster has a twelve-year sentence hanging over her head if she fails to repay a substantial amount back to the company within the next year.
Kinsey was in serious need of business finance in order to get through the crisis, but the one set of service providers who refused to help were the banks. His own bank declined his application for an overdraft because of debit orders not being met due to the former administrator. Other banks showed similar reluctance.
Fortunately, Kinsey was referred to Business Partners Limited (BUSINESS/PARTNERS) who agreed to help with a loan of about R6m. Among the conditions for the loan was that the business be transferred into his wife’s name so as to mitigate any risks stemming from the theft case.
It has been three long years since the crisis, and Kinsey Engineering has managed to survive the ordeal. The tax man and the provident fund arrears have been settled. Due to Kinsey’s honesty and business reputation, his suppliers are happy to support him.
Much wiser today, Kinsey says he has learned not to trust anyone with the business’s banking. “Probably the most important thing is a good accountant, and to make sure that there are checks and balances in place,” he says.