By Russell Ethridge

Todays’ Machining World Archives July 2006 Volume 02 Issue 07

I am a bookkeeper with a small company. My boss, one of three brothers who own the business, is married with three kids. Last month, he asked me to place a considerably younger woman, whom I have never seen in our shop, on the payroll. A work associate told me the woman is my boss’s mistress. I processed an expense account report for a tradeshow trip, and I noticed dinner receipts for two and hotel bills showing double occupancy. I knew his wife was home with the kids during the show because I saw her that week at the hockey complex where our kids play. His two brothers are absentee owners (both get paychecks) whom I don’t think would approve of their brother’s actions. Should I confront my boss? Should I tell his brothers? The amount is not huge, but it’s better than my paycheck. The work associate says my boss is an adulterer who is using the company’s money to fund his own indiscretions, and I ought to report it to his brothers.

Russell says:
Family businesses are often piggy banks for the owners who use them to fund all sorts of activities, including some which are marginally related, if at all, to the operation of the business.

While you have your suspicions, you have no clear evidence of illegal conduct (tax fraud, money laundering), and there are a variety of innocent explanations for your boss’s conduct. Perhaps Ms. X is a leading expert on quality systems, and the restaurant tab reflects a working dinner in preparation for a sales pitch the next day. Maybe the hotel bill shows double occupancy because his wife, who planned to come, stayed behind to take the hockey player to district finals, which no one expected the team to make. If Ms. X attended the conference, you might ask where her hotel receipt is. But, she may say she stayed with her old business school roommate, who happens to live in the town where the conference was held.

While there is no question the circumstances are suspicious, you don’t have the facts. “Pulling the trigger” at this point may only embarrass you, jeopardize your job, and unnecessarily disrupt what may be happy marriage. On the other hand, the brothers are surely entitled to know of the waste of their corporate assets. The only problem is, you don’t know if your boss is looting the corporate kitty or if this is a legitimate expenditure. All you know is that you put her on the payroll, and you don’t see her at the office. Even if she is paid to be candy for your boss, perhaps his brothers are fine with it. After all, they are drawing salaries instead of dividends even though they don’t show up for work, because there are substantial tax advantages for doing so. Let them look at the balance sheet at their next meeting. If they have questions for you, answer them with the facts, not your suspicions.

You are there to keep the books, not to serve as his moral compass or the eyes and ears of his absentee brothers. Unless you know that this activity is fraudulent, and you are being asked to participate in illegal conduct such as the preparation of fraudulent tax returns, you are best off minding your own business.

Russell Ethridge is an attorney in private practice in southeast Michigan. The material provided in this article is for information purposes only and does not constitute legal advice.