Mark: Today on PowerTips Unscripted, we talked to Vickie Suter of Suter Business Builders, Inc.. It’s sad but true. 80% of embezzlement occur at small businesses, and 30% involve losses of over half $1 million. The first time Vickie witnessed it, she was shocked and dismayed. In today’s episode, she’ll share simple practices and processes to help you avoid accounting fraud in your business.

Mark: And we’ll hear what they are in just a minute for more. Yeah, it’s me, Deadpool, and I got.

Victoria: Hi, I’m Victoria Downing and welcome to PowerTips Unscripted, where we talk about tips, tactics and techniques to help you build a strong, profitable remodeling company. And I’m here with my co-host, Mark Harari. Hi there. Hi. How are you doing today?

Mark: I’m very good. How are you?

Victoria: Good, good. It’s nice again to be live in the studio. Yes. You know, doing a lot of this remote for a couple of months there.

Mark: Yeah, I’m zoomed out.

Victoria: Yeah. Yeah. Yeah. Zoom fatigue. Although we’re zoom ninjas that somebody said recently. Yeah. But this is a great topic today because. Oh, my God, have I seen two over the years.

Mark: And it always comes as a complete and total shock. I can’t believe he or she did that right.

Victoria: Right. Because the trusting person and all that. But so it’s a great topic to touch on embezzlement and how to avoid that.

Mark: Absolutely.

Victoria: So should we dive in.

Mark: Dive away for.

Victoria: Over 25 years, Vicky Suter has been helping contractors see their businesses differently and giving them the tools to do things differently. The result? Success beyond anything they imagined. She’s the author of the book The Profit Bleed How Managing Margin Can Save Your Contracting Business. Welcome, Vicky. We’re delighted to have you here.

Vicki: Thank you. Thanks for having me as a guest, Victoria. Oh.

Victoria: Great topic. I know I saw an email going around that you had mentioned this, and I’m, like, grabbed your right away to do this podcast.

Vicki: Yeah, especially into it, like, right now where so much as you guys are just talking about so much stuff is remote and that people are not in the same place and things are being done more online and without that like paper and that back up then. Yeah. And I just, I noticed that my alarms have been going off about having better ways to avoid, you know, people, misappropriating.

Victoria: Right. Yeah. You know, even even some of our members that I have always felt really monitored their financials closely, were weak, had weaknesses that allowed them to be taken advantage of. So it’s it’s just a drag when that happens. It’s so sad because, you know, we all work so hard in our small businesses to build profits. So why do you think that 80% of these embezzlement is happened in small businesses?

Vicki: Well, one I think, is that, there’s a little bit of, I don’t know what I don’t know. In other words, there’s this belief that everybody, who believes that owners think, well, you’re the bookkeeper or you’re the accountant, you handle that stuff. I don’t understand that stuff. I know, you know, I know enough about it. I know it’s, you know, some of what’s supposed to happen.

Vicki: I can look at my numbers, but I don’t necessarily know all the background things that happen. And that’s your domain of expertise. And they don’t really. I think that a lot of it is a lack of process and procedure, a lack of, understanding about where and how money can get misappropriated and that there’s this trust factor and this also that there’s this thing about like, well, I don’t know, like I don’t know how to do that.

Vicki: That’s your job. There’s a little bit of abdicating that happens because there’s a lack of understanding about how it happens. And what I say is that’s, you know, you don’t have to know how to cut that a paycheck or process, that payroll or all that. But having good controls in place is the thing that I think is a lot of times missing.

Vicki: And they completely depend on the bookkeeper to have those controls in place.

Victoria: And boy, do I see that a lot. We try to tell the business owners who feel like that when they’re coming into our roundtables program or something like that, when we’re looking so deeply at their financial documents and they’ll say, oh, you know, I don’t I don’t know how to read this. We say, look, man, look at the estimates you do for the complicated business.

Victoria: There’s a complicated projects that you take on. If you can do that, you can do this. And once you do, it’s so exciting. Not of course, if you’re spotting embezzlement, but the other parts of it are pretty exciting. So tell me, where do you see most of this embezzlement happening? Where are the most common places that people can steal money?

Vicki: So the most. So it’s not just your bookkeeper, too? I’m. And I’m going to talk a little bit about where the places are from a bookkeeping point of view. But, the, like the simplest place I see is credit cards, where people. So I’ll tell you a story. I was doing this presentation on fraud with a bank, in California.

Vicki: And the night before I was going to give this presentation, there was a big article in the newspaper about a contractor who had been embezzled from for over $1 million. And it was his, their bookkeeper who had been with them for like 25 years, who had been paying her, personal expenses through the business credit card. She was paying the credit card online, and then they weren’t noticing it.

Vicki: And, and she actually ended up in addition to that, she also ended up having a personal credit card that she was paying through the business. But because they had this system and this is one of the things that I’ve seen for years that has lacked controls because the bookkeeper was just automatically transferring the money out of the bank account.

Vicki: It wasn’t the business owner, there wasn’t somebody else with those like. Hit the pay button. I know what I’m paying for. Controls or I’ve reviewed the credit card statements. I know it’s being paid because that was lacking. That person just kept taking money. Taking money. I’ve seen it where guys in the field have weekend projects and they charge stuff to the job, to a job that they’re working on, but they take the supplies and they go to their, you know, side project on the weekend.

Vicki: So credit cards is a place where I see, I, I’ve seen I’ve seen people do, you know, like what are materials? I had a framing client, framing contractor, client one. So they’re they their team, purchased an entire house where the framing on their account. But nobody was looking at the charges on their vendor account.

Vicki: Or a bookkeeper who had paid for her boyfriend’s liability insurance through their credit card. And nobody was looking at the credit card charges when payments for being my. It’s just so it’s so, like credit cards is the number in vendor vendor accounts is an are the two number one places where I see it most often where just nobody looking at that backup, making sure that I know where that went.

Vicki: Does it logically make sense. Like just having those controls in place and that does it all have to be on the owner. But somebody there’s got to be a and I always say like have a checks and balance system in place.

Victoria: It’s hard though isn’t it, to have a check and balance system in place when it is a small business and there’s only one person for each role? Like if you’re if you’re a company that you’re doing a couple of million dollars, you might have 11 people on staff, right? Who would be doing that check and balance.

Vicki: Well, I think that having the owner be a check and balance against the bookkeeper and having the bookkeeper be the checks and balance against the field. Now, obviously the bookkeeper doesn’t know what tags are for, what jobs and that, but there should be somebody who’s like, if it’s an owner. And I understand that these days we’re not necessarily cutting checks.

Vicki: One of the things I always just say to to clients, if I would be in a meeting with them and a bookkeeper would walk in and like the stack of checks and they just start signing them. Oh, like, hold on. Like you need to be looking at the back up, write up what you’re signing for. Do you know where people are?

Vicki: Charging things and it does that logically make sense? And is it an appropriate amount for the stage in the job, like just some logical things and is it coded correctly and all that? But then also on the, you know, on the other expense side of it, that there should be some controls in terms of who has the authority to spend certain amounts of money.

Victoria: Right.

Vicki: Like, do you what’s your what’s your approval limit, if you will, that you can, sign off for or, you know, authorized for payment. So that’s one of the ways to have some controls to it’s like who can authorize purchases up to a certain amount.

Mark: Okay, Vickie, is it enough to just do spot checks and randomly check things?

Vicki: Oh, that’s a good question, mark. So I here’s what I say is when you’re going to issue checks, know what you’re issuing checks for every time or payroll is another one. And we can talk about that in a second. But like just looking scanning through the backup. And I’ll tell you, there’s a number of things, getting into that habit will give you a feel for where and how you’re spending money, but it’s also going to give you a feel for if you have a guy in the field who’s going Home Depot four times a day or every day, the most expensive person on your team is going to Home Depot.

Vicki: Well, everybody sits and waits for them to come back for what they ever needed for that day. Those are also going to give you ways that you can decree. Not only are you going to catch things like people are buying materials for a side project, but you’re going to catch things like inefficiencies in the field, overspending, people buying things.

Vicki: And just because they’re not prepared, which you can address those things and you can start to become more efficient and make more money on projects and ultimately be more profitable. So it’s a good practice from, just a business management point of view and a project management point of view. To look at all that back up. I say, look at all of it, scan it.

Vicki: And here’s the interesting thing that I found over the years is that when business owners do that, they get that people are paying attention to where they’re spending money or how they’re how they’re, you know, operating on a project without, you know, them being there. And if they realize that they have, they have somebody paying attention, they tend to be more mindful about what they’re doing.

Vicki: They tend to go, oh, yeah, you know, my boss is going to be looking at the tags I need to like, you know, they’ll just be more mindful and more conscious of that. And here’s the other funny thing is that if you never say anything, I notice that whether it’s vendor, you know, vendor purchases or credit card purchases, people get this weird thing in their head that they think if you don’t say anything, and if you never mention it, that it’s almost like a perk of the job.

Vicki: Yeah. And it’s it’s a weird thing, but I’ve seen this over and over again. And so, you know, part of it is also just, it’s like a whole mindset about, paying attention to what’s going on in my business. And I’m not micromanaging because I’m not I’m not a fan of micromanaging. I think that’s a bad practice.

Vicki: But this is where there’s just a checks and balance, right? There’s some controls in place that just has there be more awareness about how money gets going out in your business.

Victoria: And I think that that’s one of the really good reasons to be doing an annual budget and break it down. According to how it’s going to be spent over the course of a year. So that’ll help you easily spot on those reports. And another good reason for doing job cost reports weekly or bi weekly. So you’re constantly looking at that and you can spot things before it turns into a problem.

Victoria: And I still run into people who don’t do those regular job cost reports to to make that analysis.

Vicki: Yeah. And paying attention to those is huge.

Victoria: Yeah. So you mentioned a couple of places, specifically vendor accounts, credit cards. That those are two obvious ones. What are some less obvious places people might steal?

Vicki: I had a situation about a year and a half ago where a client hired, and a controller, and she had amazing experience, amazing background, great references, and, within two months of starting her job, some weird things started showing up and within, and they kind of didn’t pay much attention to it. Within about six months, the AP person came to the owner and said something doesn’t look really right, because I noticed that the Karen, is like, there’s some things that seem to be duplicated in the system, starting to dig it up.

Vicki: And what she did was she was creating duplicate payroll records for herself, and then she would waive the payroll record, but then she would put the check through, as a, as a hand check, a hand cut check, payable to somebody else.

Victoria: Oh, wow.

Vicki: She was doing the withdrawals were coming out of the bank account. Yeah. And nobody was looking at the payroll back up. Nobody was looking at payroll, you know, journals. Nobody was signing those payroll checks. Right? If it’s just that hitting that button that does the automatic deposit or reviewing that report. She ended up in six months embezzling nearly $1 million.

Vicki: Oh, my gosh. And just that payroll was just one example. So it was, it was super sad. And it was also one of those places where this other bookkeeper, when she brought it to their attention, they were wise enough to actually pay attention. And then they called me in and they said, Will you dig into this?

Vicki: Something isn’t right. And as I started to dig and I started to look and I started looking through payroll journals and records, I was like, oh my gosh. Yeah. And I’m and I have to tell you, I, you know, I’ve seen this so many times over the years and I’m always surprised and amazed at people’s creativity. Right.

Victoria: In a bad way. Right?

Vicki: Yeah. What is.

Victoria: That girl.

Vicki: That early on that I saw? This was, a client had a a, stamp for their signature for checks that their bookkeeper had, like, are you kidding?

Victoria: Yeah. Really? No idea.

Vicki: So anybody like that would be, like, the lowest hanging fruit in this conversation would be if you have a signature stand for checks like, oh.

Victoria: Yes, no kidding.

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Victoria: All right, so what are some of the controls that you recommend?

Vicki: So how is kind of like I was saying before. So I would say having checks and balances in place. So reviewing the backup for credit card, not having the person having somebody different than the bookkeeper hit that send button on the payments or signing checks when signing checks, looking at that backup. But having a process in place is really key.

Vicki: And having that process and a procedure that gets followed consistently, like who can authorize payments up to how much? That the you look at the backup that that, the person who is who is entering AP is not the person who’s cutting the checks, not the person who’s signing the checks. So, like just some separation of those duties.

Vicki: The other recommendation I have is that you have somebody outside of your business like that could be your CPA. It could be a, you know, an advisor who reconciles your bank account, somebody different than the person who’s doing your AP or your accounting, especially in a smaller business. I have found that that’s really key. One of the other things is that any notices from the IRS or the state should come to the owner to open up.

Vicki: I’ve also seen where a bookkeeper wasn’t making the tax payments. They posted it in the system like they were making tax payments. But they were actually changing the payee and they were depositing it into their personal accounts instead of taxes weren’t being paid. And and that was like, yeah.

Victoria: Are there are there any triggers that you have seeing that somebody like, for example, the woman who had been the office manager for 25 years, she probably she may not have started embezzling right away, but are there things that you’ve seen that sort of trigger that kind of behavior?

Vicki: I, you know, I want to go back to what I think what I said before, which is that when nobody pays attention, people get a weird thing in their head where they almost think like it’s a perk of the job. And that, if you don’t say anything, you must think it’s okay.

Victoria: Right.

Mark: You don’t know that, I don’t know, I don’t know if this is true or not, but it seems to me that, at least a portion of those events would be, crimes of opportunity, where it just kind of you just stumble across a way to do something. And then try it once and then it works and then you keep going, then it the.

Mark: You know what I mean. It seems like something that some people could just kind of stumble into and think, hey, this will be working.

Victoria: Right. Even if they maybe had, would never normally have thought it. Yeah. You know, another thing that occurs to me is especially today with, you know, what’s going on in the world that if somebody runs into a specific financial challenge, that that might push them over the edge into doing something illegal.

Vicki: They might think, oh, it’s just temporary, I’ll pay it back.

Victoria: Right? And then they find that it works and nobody mentions it. And that just keeps going, you know? So I think that that’s something else you and owner should probably watch for. If somebody seems to be in really dire financial straits for some reason, just that might just be something to keep your eye on.

Vicki: That’s a very good point. That’s a very good point.

Victoria: Now, you mentioned ten ways to spot accounting fraud.

Vicki:

Victoria: So can you share a couple of those us.

Vicki: So I this and this is proven true is I’ve looked at the cases where there’s been embezzlement from a bookkeeper. Never wants to somebody who never wants to take a vacation. Like I am indispensable and I can’t possibly take vacation because I’m just super busy, and I’ve. Because they don’t want somebody going through their stuff.

Vicki: They, always want. They always, has more work than possibly can be gotten done in a day. And so they’re having to be there when other people, opens up that nobody’s looking and, and then one of the other ones, and there’s ten of them. I’m not going to go through all of them, but one of the other ones is somebody who acts like their job is rocket science.

Vicki: Gets and like nobody else can do it. And like, I’ve got to have controls. You don’t understand. I can’t explain this to you. It’s too complicated. Like somebody who goes, you know, who treats you like, I got this, like, don’t worry about it.

Victoria: Yeah.

Vicki: That’s usually, like, kind of a sign of. Okay, well, what do you like? It’s not rocket science, right?

Victoria: What are you really doing? Okay, those are good. Now, if they want to find the whole list of ten, where would they go?

Vicki: I am happy to email it to them. I don’t I’m happy to share it with you. And if you want to put it in your show notes, a link to your show notes, I’m happy to do that. Or they can email me at Nikki Nikki at Suter Business builders.com.

Victoria: Okay, great. Now also we mentioned your book. Where would our listeners find your book. Well first of all will put a link in the show notes. Right okay.

Mark: And yes.

Vicki: They can find it on Amazon.

Victoria: Okay. Great. Good. So that’s a that’s a very good one. I read it to it. As a matter of fact, I think I wrote a.

Vicki: Little.

Victoria: Blurb for you as well. So yeah, it’s a good one.

Mark: Well, before everybody runs off to, to Amazon, how about if we do the, Lightning Round? Are you are you ready, Vicki?

Vicki: Ready.

Mark: And now here’s the reminders. Advantage lightning round. It’s a tri. Okay, let’s put 60s on the clock. Here we go. What’s your favorite business book and why?

Vicki: It’s my favorite business book would be seven Habits of Highly Effective People. And it’s an old book. But it completely changed how I thought about business and about how I thought about being a leader and a manager in a business, because it really kind of takes this holistic approach to how do you, how do you think and how do you be with people in a way that creates success for everybody?

Mark: If you weren’t business coaching and consulting, what do you think you’d be doing?

Vicki: I would be teaching kids to cook, write a cookbook with my mom and I, and I love teaching, and I love teaching. You know, I had been doing that for a while, and it’s just a ton of fun.

Mark: What are you not very good at?

Vicki: I’m not very good at texting. I can’t tell you how many times my kids laugh at me and send me a text message back and go, what? Because all like voice, text or all like me, you know, just swiping really quick and then and then it’s just an old mess.

Mark: Your room, your desk or your car. Which would you clean first?

Vicki: Probably my desk. Lack of organization makes me a little, very ineffective. I get very.

Mark: Overwhelmed. What’s your least favorite holiday?

Vicki: Least favorite holiday? Probably at Halloween.

Mark: If you could have a theme song, what would it be?

Vicki: All right, I’m going to tell you the one that came to mind. I am woman here, man.

Victoria: I knew that I was going to say I knew it. And it’s also because Helen Reddy just passed away, right? Oh, yeah. I was thinking, that’s the song. I’m just gonna say. Appropriate. Vicki, I must say today, thank you so much for that. And this has been very informative. I appreciate you being part of the podcast. Now, before we go, I want you to share your five words of wisdom with our listening audience and why they resonate with you.

Vicki: Okay, so process management creates consistent results. So that resonates for me, because what I notice is that when we manage process the process. So like if we have a process about how we’re going to do things, whether it’s in accounting or project management or estimating, and we manage to that process and the results around that process, you create more consistent results in your business.

Vicki: You create more profitable projects. You have you have a consistency in the way things are done, and it gives you the ability to be able to grow in a, consistent way. It’s when there’s those things are lacking is what hampers a lot of times people’s ability to grow a thriving business. Okay.

Victoria: Perfect. Thank you so much. We appreciate you being here and sharing your knowledge with us.

Vicki: Thanks guys I appreciate it. You bet.

Victoria: That was really informative. You know, I’ve seen it happen to such good people to have, their hard earned money.

Mark: Smart, smart people, and really on top of it, people do. Right? Like people that you would think, man, they know every nook and cranny of their business. I mean, I’ve seen it happen to to ten, $15 million remodeling firms. And they just you think, how did they miss it?

Victoria: Right? I think that some of it is complacency over years of nothing happening. And you just don’t you just stop paying as close attention. Yeah, yeah, yeah. Every time I hear one of these, you know, when I’ve talked to any of the experts are talking about investment, it just sort of makes me shudder, you know, send shivers down my spine, because how horrible would it be to be working with someone that you trust?

Victoria: Yeah. And then find out that that had happened.

Mark: That’s a.

Victoria: Mess. Yeah. Yeah. So this is very informative. I hope people pay attention.

Mark: Yeah, that’s good stuff. What you’ve got. You get alerts on credit card signs. Yes. Like email alerts on credit cards, right? Yes. I know I’m constantly getting an email from you. Hey, this thousand dollars was this year. Yeah. Hey, this $1,200 was this year. It’s a little annoying.

Victoria: But at least you don’t want people.

Mark: To know that it’s. It’s all good. Yeah. Really? Yeah. That was great. Well, we want to thank Vicki for sharing some of these tips with us today. And, we’ll put those links in the show notes to the rest of her list and, and all that good stuff. The link to her book as well on Amazon. And, as always, we want to thank you for joining us week in and week out.

Mark: I am Mark Harari.

Victoria: And I’m Victoria Downing. We’ll see you next week.