Checks and Balances Protect Your Company's Reputation

What would happen if you accidentally overcharged your customers by $7.5 million, and all of them were set up on automatic payments, so you immediately took that money out of their bank accounts or put it on their credit cards?

That's exactly what happened to DreamHost, a web hosting company that has over 600,000 websites hosted. The company accidentally took a year's worth of hosting fees out of their customers' bank accounts. They were upgrading technology at the company, and were working out bugs in the billing system.

Cash collections from credit and debit cards seemed lower than normal, so personnel started looking into the issue. They quickly realized that during their upgrade, not everyone was being billed as they should have been. With some fancy fingers, they went ahead and told the system to bill everyone who hadn't been billed.... for 2008.

Oops... They meant to bill anyone who hadn't been billed toward the end of 2007. They didn't mean to bill everyone and take money out of their accounts for the full year of 2008 hosting fees. That resulted in about $7.5 million coming out of bank accounts and going onto credit cards, all of it unexpected by the customers.

The company apologized to customers, but I can only imagine the damage that has been done to their customer relationships. And this affected all of their customers. Likely there are customers who are angry and determined to leave.

This was apparently an honest mistake, but how are the customers to know? What if the customers believe that the company was trying to scam them? The company should have had checks and balances in place so a huge error like this could not have happened... particularly when it involves taking your customers' money.

All the charges have been reversed, and the company says they have put controls in place to prevent this from happening again. To their credit, they've also volunteered to pay any bounced check fees or other charges that may have been caused because of this error.

This may all be fixed quickly, but do you want to take a chance that you'll alienate all of your customers in one fell swoop? Checks and balances are critical to protect your customer relationships. Don't let a huge mistake like this put your business in jeopardy.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.