Embezzlement with Kelly Paxton
Embezzlement is on the rise, but only a few incidents ever get reported to law enforcement. Why do people steal and how are they doing it? What can business owners do to help prevent these crimes and what should they do if they suspect them?
Our guest today is Kelly Paxton. She has more than 25 years of investigation experience and is a certified fraud examiner and private investigator. She started her career in law enforcement as a special agent for the US Customs Office of Investigation in 1993. She has worked white-collar crime, fraud, money laundering, embezzlement, and conflict of interest cases. Kelly is also the proud owner of Pink Collar Crime, a passion of hers about embezzlers in the workplace.
- [1:02] – Kelly has always been interested in money. She started her career in finance but had a client arrested for fraud. She then became interested in investigating why people steal money.
- [1:57] – Kelly’s goal is never to put someone in jail. Her goal is to find out why the person stole the money and to hopefully see the money returned to the victim.
- [2:32] – Why do people steal money? Generally speaking, Kelly says most people will steal because they think that money will help them fix their problems.
- [3:51] – Most people are good people, but life happens, and most people think money fixes it.
- [4:11] – Embezzlement is stealing money from business. Kelly defines Pink Collar Crime as petty amounts stolen by low to mid level employees, primarily women, from the workplace.
- [5:40] – In the 80s, this was a shift in thinking. Up until then, most people hadn’t thought about embezzlement as a common crime.
- [6:17] – Kelly explains that in embezzlement cases, there is a lot of victim shaming. Due to this, only 15% of embezzlement cases are reported to law enforcement.
- [8:01] – Most victims like the employee and that is how the employee is able to steal. Trust is not an internal control.
- [8:46] – 60%, or 3 out 5, of all dentists have been ripped off.
- [9:13] – Kelly calls embezzlement “the crime of main street.”
- [10:01] – Financial audits are not always when losses are noticed. Tips and hotlines are actually more effective in finding out about these problems.
- [11:06] – 90% of bookkeepers in the United States are women. Women push back against the title “Pink Collar Crime,” but should be pushing back that women are in lower-level positions as a whole.
- [12:30] – Kelly shares an example of a woman who stole millions of dollars over 20 years. When she was arrested, she was exhausted because she could never take a vacation as she was afraid of being caught.
- [13:48] – Another warning sign is a control freak, especially when it comes to changing computer programs.
- [14:53] – The number one way people embezzle from the workplace is forged or unauthorized checks.
- [16:28] – It is never good to be ripped off, but there are good things that come from it, including connections with other people and lessons learned on how to manage the business moving forward.
- [18:36] – The principle doesn’t pay the principal, meaning the principle of being ripped off doesn’t pay the loss.
- [19:16] – At the end of the day, you have to get back to work. The money is replaceable. The trust is difficult to get over.
- [21:00] – Intuitively, you trust a coworker more than you trust a stranger. So you won’t always see this coming.
- [21:41] – Trust but verify. Kelly uses an example of trusting your dentist when you have a cavity.
- [23:47] – If you are a small business owner, Kelly recommends that you mail your bank statements mailed to your home or to a P.O. Box that only you can control.
- [24:27] – Always look at the images of the checks on your online bank statements.
- [25:49] – Mix up when you check things. Check different size checks, audit your own finances at different times of the year. Keep everyone guessing so they don’t see a pattern that they can take advantage of.
- [28:10] – Kelly also suggests that you have a binder or system of some sort that outlines everything in the event that you need to show details in a case.
- [30:23] – Business owners don’t generally look at all the checks going in and out of the business. Some business owners even have pre-signed blank checks to make tasks easier, but puts them at risk of fraud.
- [32:01] – Kelly would rather train business owners to help prevent these events than to sit across from someone she is investigating as a criminal.
- [32:48] – Kelly shares an example of one of the craziest cases she worked.
- [34:18] – If someone starts at a business and if they steal within the first 6 months of working there, they’ve done it before. They may not have a criminal history or have not been caught yet.
- [35:45] – If you walk into your house and you see a dead body, you call the police and you don’t touch anything. Unfortunately, with embezzlement, when a business owner notices something wrong, they go in and try to figure things out themselves and oftentimes mess up the crime scene.
- [37:46] – Kelly is writing a book, but admits that it will be an ebook because most people won’t go into a bookstore to buy a book about embezzlement. This can be seen as embarrassing.
- [39:07] – If you have proof of embezzlement, most of the time the employee will confess when confronted. But you need to be prepared and never confront them alone. Kelly recommends having a lawyer with you as a reliable witness.
- [42:16] – The more people who have access to the information, the less likely the crime will happen.
- [43:13] – There is no CSI Embezzlement. These cases take an extremely long time.
- [44:40] – Law enforcement has limited resources and will need to put their focus on different types of cases due to the length of time and investigation needed to work on these cases. As a business owner, you will need to spend a lot of money to have things investigated.
- [46:10] – There is also a level of embarrassment when things like this happen.
- [48:42] – There’s not a national database of arrests and convictions.
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- Pink Collar Crime Web Page
- Book: Embezzlement: How to Detect, Prevent, and Investigate Pink-Collar Crime
Can you tell me how you got involved in the investigation of embezzlement?
I will tell you, I have always been interested in money. When I say money, originally, my first career was in finance and it was studying how people invest money. We had a client who went bad and was arrested for wire fraud, so then I got interested in investigating why people steal money.
My third career is speaking about money, fraud, why people do it, and how to prevent it. It’s kind of always been about money, but the core of it is honest people steal, and that’s what I’m fascinated with.
I used to have a supervisor when I was a special agent with US Customs and he’s like, “When are you going to put in the arrest and the conviction statistic in the system?” That never was exciting for me. What was exciting for me is finding out why they did it, and then also potentially returning the money to the victim. It was never about putting the person in jail; it was much more about why and trying to make the victim whole.
Restorative justice. That leads me to the question: Why do people steal?
People steal, I think because we have short-term thinking. Daniel Kahneman, famous behavioral economist…we have system one and system two. System one is short-term, quick thinking. Two plus two is four, or I’ve got this bill I’ve got to pay, I’m just going to pay it. They think that money will really fix their problems. Long-term, it doesn’t fix their problems.
You have the fraud triangle. You have the opportunity, pressure, and rationalization. Most investigators will say that you can only control for the opportunity. Yes, that is the easiest part of the fraud triangle that you can measure. But you can also control a little bit for the rationalization part of the fraud triangle because if you have a really crappy tone at the top if you treat your employees poorly, or if they see you living out of the corporate checkbook, they are going to see what you’re doing. It’s a lot easier to steal from someone if they are thinking that you, as the boss, is stealing from the government because you’re not paying taxes, because you’re writing off crazy expenses, and things like that.
With COVID, we have financial pressures that this country hasn’t seen—I’m going to say—since the Great Depression. I can’t get out of bed in the morning if I think I’m going to be ripped off all the time. I think people, with the exception of narcissists and psychopaths—and I heard you had a specialist in narcissism on—most people are good people, but life happens. Most people think money fixes it.
Let’s take a step back. Let’s talk about what embezzlement is, and then we can talk about how to prevent it, why people are committing it, and how.
Embezzlement is just asset misappropriation, stealing of money from the business. I’m known as the pink-collar crime lady and most people think that’s women committing any type of crime. But the definition is actually petty amounts stolen by low- to mid-level employees, primarily women, from the workplace.
That was popularized by criminologists—I can’t come up with that term, I’m not smart enough to come up with that term—in 1989 by Dr. Kathleen Daly. I work to try to bridge academia in criminology to business, like, Main Street business.
In 1939, a famous criminologist, Edwin Sutherland, came out with the term white-collar crime. Prior to 1939, we thought of criminals as icky people who lived across the tracks. But think of rich people who steal, we’re seeing this in COVID with the PPP program, the EIDL program. We’re seeing “wealthy, successful people steal.” Look at Bernie Madoff. But that was a big shift change in 1939 to say that people from a certain social status can be criminals.
That was a fundamental shift. We used to think crime was break-ins, assault, things like that, and not just move a few zeroes from one account to another.
Right, and most people are going to be affected by suite, office suite crime, instead of street crime. The problem is if you get your car ripped off, or say that you leave your car unlocked one night by accident, you go out the next morning, and it’s been rifled through or they’ve stolen it. Are your friends going to say, “Well, you are an idiot for not locking your car”? No, they’re going to say, “Oh my God, that’s so terrible.”
But when you get embezzled in your business, you can’t imagine the amount of victim-shaming. You’ll see stories and they’ll say, “How did that business owner manage to let $3 million walk out the door? They must not have been paying attention.” The amount of victim-shaming is insane, which leads to a statistic. These statistics are a little wonky because we don’t know what we don’t know, but only 15% of embezzlement crimes are reported to law enforcement supposedly.
Why aren’t eight-plus out of 10 not going to law enforcement? Shame and humiliation. If you get ripped off, and, say, you’re a successful businessman, master of the universe, are you going to go to your buddies on a golf course and say, “Oh my God, you know that woman in Accounts Payable, she just ripped me off $3 million”? No, you’re embarrassed.
Is some of it due to family members being a part of business and now it’s like, “Okay, well, my family members stole from me. I don’t want them to go to jail; I just don’t want them to steal any more money from me”?
That can be it, definitely. Thanksgiving and Christmas dinners are incredibly uncomfortable if you, as the business owner, have put your favorite niece or nephew in prison—makes it a little uncomfortable. I will get business owners who will say, “But they were my relatives.”
I have only had one business owner who was ripped off almost a half-million dollars say he did not like the person who stole from him. Mind you, he originally thought she only stole $400 and it turned out to be $450,000.
Most victims like the employee and that’s how the employee is able to steal. Because trust is not an internal control. They’re always there. They don’t take vacations, they’re there before the owner gets in, they’re there after the owner leaves. Part of the reason they’re doing that is because they need that extra time to cover their tracks. We hire people we know, like, trust, and think are capable.
Before we start getting to the people, is there a consistency in the businesses, something going on in the businesses—I don’t want to say necessarily targeted—where you see embezzlement happening? Small businesses, big businesses, family businesses.
A crazy statistic. Everyone has a dentist, I would assume. Sixty percent of dentists get ripped off. The next time you go to your dentist, after they have stuck their hands in your mouth, and given you Novocaine, ask your dentist, “Hey, I heard this crazy statistic that three out of five dentists get ripped off.” If your dentist doesn’t say anything, they know they are one of the people, one of the three out of five who have been ripped off.
I call embezzlement the crime of Main Street. It is the crime of smaller-type businesses. The median loss for a business that has under 100 employees is almost twice the size as the median loss of a business that has over 100 employees. Because over 100 employees, you have processes, maybe you have segregation of duties much more so than a small business. Embezzlement is really the crime on Main Street.
It’s almost like the more people that are involved in looking at the finances, the more bureaucracy there is. It’s almost inversely proportional to the amounts taken.
Kind of. A lot of businesses say, “I get audited.” Well, audits are not the number one way that you find fraud or embezzlement. It’s actually tips. This is where you need to listen to your employees. You need to listen around the water cooler. You need to look outside and see. I have a saying: the parking lot audits.
If you have a $30,000 or $40,000 a year employee and they show up every year in the new Range Rover, we call that a clue. In hotlines, if you have a hotline like an alert line, those losses are smaller because people feel that they can anonymously turn someone in.
It’s that they don’t want the person committing the crime but they don’t want to have to be the one who comes forward to report them?
Right, because what if it’s your boss? That happens, that definitely happens. The higher up you are in an organization, the more you steal. That’s the other thing. The pink-collar crimes, I said it was primarily women. Ninety percent of bookkeepers in the United States, according to the Bureau of Labor Statistics, are women.
I will get women that push back against my title of pink-collar crime. They should be pushing back against the fact that women are in lower-level positions as a whole. Don’t push back at me, push back at the fact that society has women in lower-level positions.
This is another thing that I say in my presentations. I don’t care how smart you are. I have an astronaut, a nuclear physicist on the board of Boeing. He got ripped off three-quarters of a million dollars by his bookkeeper. It doesn’t matter where you are on the org chart compared to that woman in Accounts Payable.
That’s not a sign of intelligence. There’s no sign of intelligence with being able to embezzle. It’s a sign of the systems, knowing how they work, and where the holes are.
And knowing whether people are actually monitoring the system.
Right. I don’t have red flags, I have pink flags. One pink flag is they never take vacations. They can’t miss work. There was a woman, crazy family story. Her name is Bernice Geiger. It took her 20 years to steal $2.15 million in the ’50s and ’60s from her dad’s own bank, and the bank actually shut down. It’s the equivalent of $17 million in today’s sum.
She did not steal it overnight—it took her 20 years. When she was arrested, she was exhausted. Why was she exhausted? Because she said she could never take a vacation. Because she never knew when someone was going to come and check the real set of books.
She goes to prison for five years, she gets divorced, she moves back into her parents’ house—which I told my children, “That’s not happening.” I mean, I am the pink-collar crime lady, that would be bad. She allegedly consulted for the precursors of the Federal Deposit Insurance Corporation and what did she look for? People who weren’t taking vacations. That’s who she looked at.
That’s so interesting that this is weird. People are so busy trying to cover up the crime and there’s the fear of being caught that makes them look like they were a super diligent employee.
Oh, yeah. Another pink flag is control freak. If they don’t want to upgrade the computer system, if they don’t want consultants to come in, there’s a reason. Because the consultants are going to come in and go, “Why do we have this extra banking account we thought we’d closed up a couple of years ago?” Well, that’s the bank account that they’re moving all the money through.
Another one of my hashtags is “it’s not rocket science.” I’m not a CPA. I say I’m not smart enough to pass the CPA exam, but I do know how to put these cases together. The money is in the business and it goes to the suspect. It doesn’t go from the business to Liechtenstein, to Panama, to cryptocurrency, to the suspect. It’s very much A to B. Maybe there’s a C, but these cases are very paper-intensive, receipts, invoices, things like that. It’s not this cybercrime at all. It’s pretty basic.
Is it usually just wire transfers to accounts that look like they’re in the company’s name but they’re not really in the company’s name, or is it cash or fake invoices?
The number one way according to the ACSC and another report that is no longer published that the numbers are valid is forged or unauthorized checks. I will get a business owner who finds out what they do and they’ll say, “I sign all my own checks.”
I just smile and they’re like, “OK, what does that mean?” It’s like, “Do you sign all your own checks and do you actually look at your checks that you’ve signed? Really pay attention to them?”
There’s a great story and it’s relatively recent. He’s talking about Mark Cuban, Dallas Mavericks, billionaire. He got his MBA and he started his first business. He had $84,000 in the bank. He said, “I did everything that I was told to do in my MBA program. I signed the checks, I looked at the invoices.”
Then he goes, “So I hand the checks signed to his assistant, whose name was Renee. What she did was she took whiteout and she very nicely left me $2000.” He said it was “the best thing that happened to him.” Non X-rated but he goes, “It made us get our shit together” because he said it would never happen to him again.
Embezzlement is a terrible, terrible thing to happen—the whole cheesy, cliche saying, “Everything works for a reason.” I’ve had clients, they’ve been ripped off—and it’s never good to be ripped off—but there have been good parts of it that have come out.
I had a client recently who got ripped off almost a half-million dollars. They reached out to one of their best customers who turned out, he had been ripped off. He’s in the likes of the Mark Cuban range. Because of that, he’s really supported them and made introductions for them that they would have never gotten. I’m not going to say it was a good thing because they went through a really difficult year, but in the end, they actually have gotten better customers. We’ve got to try and see the bright side of it.
I think it’s always how I would hope that most good businessmen, when things go wrong, they can analyze and say, “First of all, how do I prevent that from happening again, but how do I learn from that and how could I apply it to other areas of my business?”
Someone approached me as an advertiser, misrepresented who they were, and I ended up losing $10,000 with this individual. Part of my first thought process is, “I’m going to go to war. I’m going to make this guy’s life miserable. I’m not going to stop until I make this guy’s life miserable.”
The good thing is I thought about it, slept on it, and then realized, “You know what? I’m just going to count this up as an expensive lesson.” Hiring the lawyer, the stress, the anxiety, the vitriol of going after this person is like, “OK, this is not worth it. I just need to have better processes in place. OK, what are the processes that I’m going to create because of this lesson?”
I just listened to a guy on another podcast who was ripped off in the ’90s. He’s still talking about it. He has some amazing quotes that he said, interestingly, when you just said the principle of it—the principle does not pay the principal. The principle of being ripped off doesn’t pay your loss.
He goes, “I finally had to get over it.” Clearly, he’s not over it. He’s over the amount of money, but he’s still talking about it.
I say my third career that I have right now, I’m kind of a fraud therapist. Because first off, I’m cheaper than lawyers. My work is always done via lawyer because I have to have the attorney-client privilege, work-product privilege.
I’m cheaper than the lawyer. But at the end of the day, I will tell the business owner, “Get back to work, sell more widgets, sell more of your time. Money is replaceable. The trust is much more difficult to get over.” Again, I get these people who find out what I do and they’ll tell me, “Oh, my God, in the 1998 crisis, I lost all this money.”
The money part they’re talking about briefly, but it’s all those other feelings of shame, humiliation. “How did I not see it? How can I trust again?” That’s the deeper work of embezzlement. Money is replaceable.
We were talking about it before we started recording. That’s always been—me being a small business owner in my finances—that’s always been something that I’ve had a very hard time addressing. It’s that trust issue of if someone has access to my bank accounts, can I really trust and be entirely hands-off with them, and let them just do their job?
I have a virtual assistant—I clearly have trust issues because I’ve worked with this for a long time—and I say, “I have a virtual assistant.” And they’re like, “You have a virtual assistant?” I’m like, “She’s a VA, but she lives five miles from me and I know I could track her down and kill her if I need to.” The other interesting thing, which I said at the beginning, is honest people steal.
I have defended and prosecuted criminals that I’d rather go out to happy hour with than some people I’ve worked with in jobs, because the criminals I know are criminals and they made a bad choice. Whereas, coworkers sometimes I didn’t see the knife being stuck in my back because you intuitively trust a coworker more than just a random person that you meet. You have to. I don’t know if you’ve read the book recently, Malcolm Gladwell’s Talking to Strangers, but it’s fascinating and we have to trust people.
What if you went into your dentist and he or she says, “You have a cavity.” Do you believe them or do you say, “Prove it”? No, we believe them. We couldn’t go through our lives if we don’t believe people. But the problem is you have to trust but verify. If you keep going into your dentist and they keep saying every time you have a cavity every six months, maybe you should go, “Hmm, why is it every six months I have a cavity?” I don’t know. Trust but verify, Ronald Reagan.
I had a friend who, many years ago, was a chiropractor and my initial thought is, “Oh gee, I hate chiropractors.” Not the fact that they make adjustments to people’s backs—I’m OK with that—but it was like, “I’ve never met a chiropractor or a person who goes to a chiropractor who hasn’t said, ‘Oh, yeah, I’ve been going there for years.’” I’m thinking, “Are they really doing their job, then? Because if you keep coming back, it sounds like they’re really not fixing the problem.”
I met this guy who was a chiropractor and he was like, “It’s really strange, but the goal of my office is to make people not come back.” I was finally like, “Oh my gosh, if I ever need a chiropractor, I’m going to go to this guy because he’s actually trying to resolve the underlying problem.” Not, “Hey, here’s another person I can sign up on a subscription service for the next five years.”
That’s so funny because my father-in-law—rest his soul—was a neurosurgeon and he had the same thing about the chiropractors. I have friends who swear by their chiropractor and most of them are like, “It’s a back tweak” and it goes away. And then maybe a year or two later, they go back. You have to at least trust yourself.
We’ll get off that tangent—we don’t want to disparage any more chiropractors.
No, no, uh-uh.
We talked about the ways to spot. The Maserati shows up in the parking lot for the frontline accountant, they’re not going on vacation, they’re super control freaks over the accounting. Are there processes that small businesses can set up to also help as opposed to looking for the pink signs?
Yeah, these are all very inexpensive if not free tweaks. If you’re a small business owner, mail your bank statements home or to a P.O. Box only you can control. You’re like, “I don’t want to mail my bank statements home.” You know how easy it is with computers these days to make a bank statement look like $1 million instead of $12,000? Really easy. You need to be the first person to open your bank statement. Some people are like, “I download my bank statement.” Do you actually look at the image of the check?
I have this other client who I call it the Fat Finger Caper. She wrote out checks and one was $2500 to ABC Corporation and $3000 to XYZ Corporation. She’s going through her only bank account and she sees $2500, $3000, and she accidentally clicks on view image for the $2500 one and she’s like, “It’s going to show ABC.” No, it showed the outside bookkeeper, and that started the unraveling of $500,000 theft.
She’s on a mission to actually get people in our industry to either request the hard copy checks banks don’t want to do anymore or at least to view the images. Because in your mind, you keep a mental tab of what you have. You sell 10 million widgets and you know you get $1 a widget. In your mind, you’re like, “I’ve got $10 million in the bank.” You’re keeping this mental calculation, but you actually validate it. And, she wasn’t. She was looking at the checks and seeing the dollar amounts but not looking at the image. So, like, looking at that.
Maybe you tell your accounting people, “I only look at checks over $5000.” Or they know you only look at checks over $5000. Mix it up. Say, “You know what? I’m going to pull a couple checks under $1000.” If they think you only look at them at the end of the quarter, mix it up, and do it the first of the month.
There was a woman in Oregon who stole, I believe it was $800,000, from a municipality. The municipality had audits, but the auditors only showed up during June and only looked at June. She stole until May 31st, went cold turkey for a month, and then started up every year July 1st. Mix it up, keep them guessing, and that’s a freebie. That doesn’t cost anything.
Would you recommend things like, if you’re maybe a little bit more than a small-sized business, so you would have maybe multiple people in your accounting staff who are having random internal audits by different employees, just trust but verify type of processes?
In the warehouse business, we used to call it the cycle counts. Just someone who’s not normally in the warehouse goes out and counts the locations to make sure they’re right.
It’s like you have segregation of duties. The person who receives the money doesn’t deposit the money and doesn’t put it into the system. The person who prepares the payroll doesn’t approve the payroll.
Do you have employees who take vacations and make sure they take vacations? And there’s a term in the younger generation—microcations—where they’re only gone two or three days. If you’re only gone two or three days, no one’s going to do your work for you, they’re just going to tell you to work longer when you get back and get caught up. But if you’re gone two weeks, most businesses can’t have you not do your job for two weeks, so people come in and they look at the stuff and they have to do it. That’s cross-training and knowing what someone does.
I’ve met this person recently through a Mastermind and she’s a documentation expert. When I first met her, I was like, “That is genius, because I’ve always had this hit-by-the-bus book wherever I’d worked where I delineate all my responsibilities daily, weekly, monthly, quarterly, annually, so if I got hit by a bus, someone could come in, immediately pull out the book, and know what needs to be done. She does this for her job, and I think it’s genius because then you know where everything is and it’s not just sitting in someone’s head.
That’s what I always worry about. I know some people who own small businesses. They don’t use accounting software, it’s just the checkbook. And I’m just like, “Oh, it frightens me.”
You can’t do that. Oh, my God. You can’t do it for a lot of reasons. You get a lot of businesses, big checks have to have two signatures. The number one way people embezzle is forged or unauthorized checks. I know this woman—I call them my felon friends or my prison pen pals—and I talk to the prison pen pals or women because I don’t do male prison pen pals. That would be a bad thing.
I talked to this one woman, and she worked for an incredibly successful business. And when she embezzled, she signed the vice president’s signature all day long. She could never sign the older brother who was the president’s signature because she just couldn’t get a signature down, but she goes, “Oh, I could sign the VP’s signature all day long.”
That’s scary. You think you’re counter-signing the check and you’re only signing the checks for $10,000 but you might have someone in the back office adding an extra zero or not even showing you the check.
She also said that she knew certain times of the month, the business owner would be rushed and that’s when she’d just slide in an extra check. At the bottom of the pile, my dad used to have this thing in his checkbook. If he didn’t want his girlfriend to see that he wrote a check, he hid it in the bottom of the checks. She would just go through the tops, but he would pull a check out—check number 48 out of 50—because she wouldn’t even notice that it was there. There are little things like that that you can do to hide it, and business owners aren’t going to go through the checkbooks.
Someone said to me, “I have some pre-signed checks in my safe for when I’m on a business trip. If there’s an emergency, they can go in there.” I’m like, “When’s the last time you looked at them? Are they all there? Do you have a register of when they were written and why?” You could just see his eyes glaze over like, “Oh, my God, I’ve never actually looked to see if any of them had been used,” and he hadn’t.
The blood just rushes out of his face.
I can clear out a cocktail party pretty darn quickly with them rushing back to their offices while going, “Oh, my God, I’ve got to check those checks. I’ve got to see.”
Signature stamps—people used to use signature stamps. It’s like no one these days should use the signature stamp, but there are people that’s like, “I don’t want to sign all those checks.” “Oh, yeah, well, you also don’t want to have to hire me.”
I’m not trying to not get people to hire me, but I would rather have people hire me on the front end. I’m a lot cheaper on the front end than I am on the back end. What is it? An ounce of prevention is worth a pound of cure, or something like that.
If we have to come in on the back end, it’s much worse. Let us come in on the front end and help you about processes.
Do you train on the front end and then investigate on the back end, so to speak, as to size your business?
Yeah, I did do that. I don’t do as many investigations anymore just because I’m so busy speaking about it. I would much rather go to a group of business owners, or auditors, or CPAs, and train a group of them to go out and look for these things or to put these processes in effect instead of sitting across the table from someone and say, “OK, you stole, tell me about it.” That’s whack-a-mole versus when you’re training, and teaching, and writing about it, you’re affecting a much bigger audience and I think it’s better.
What is the silliest embezzlement case that you’ve dealt with? Either silliest or strangest.
The woman who stole $450,000, who the guy thought was only $400. I gotta put that up there with one of the craziest ones that I’ve been personally involved with.
He was a doctor, but he also had a business of a winery vineyard and he hired this woman—her name was Tiffany and this is all public record—and he said he never liked her so he never gave her access to his checkbook. But she quit on him abruptly and he noticed two purchases at Staples and Target for $400. Oh, he was so angry, so he called the local deputy and they came out and he wrote a report for $400.
Then we start looking at it, and it’s $450,000. He comes in and I said, “You know how she stole?’ He’s like, “I have no idea.” He goes, “I never gave her access to my checkbook.” I said, “She refunded on the Visa machine all day long.” And he looked at me and he went, “I have a wine tasting room. You taste the wine, and if you like it, you buy it. I would never be giving refunds.” I said, “She refunded to the tune of $450,000.” He never even looked at the possibility that she could refund and he was gobsmacked.
The interesting thing about it was she quit, he didn’t catch her, he didn’t catch her till afterwards, and he was so mad that she would steal $400 from him. Wait till when he found out $450,000 from him. She actually got sentenced to, I believe, 78 months. It was her first arresting conviction, but she had done it before, so this is another tip. If someone starts at a business, and if they steal within the first six months of being there, they’ve done it before.
That’s the other thing, according to the Association of Certified Fraud Examiners, only 4% of fraudsters have criminal histories. Why is that? Because the business owners don’t want to deal with it. They just fire them.
It’s easier to fire the person and move on as opposed to come public, admit that someone stole from me, go through the police reports, go through all the hassle.
I hate to say it, and maybe some of your audience will identify this. A business might “have two sets of books,” and so you think an audit is bad? What if you have to hand over your real set of books to the law enforcement? I call it the get-out-of-jail-free card, and I had a woman who stole from a business, and when she got caught, she was confronted by the business owner and attorney. Don’t ever do these cases on your own.
If you came into your house, Chris, and you saw a dead body, what would you do?
I’d call the police.
You wouldn’t touch the body?
No, heck no. I’ve watched too many episodes of CSI and Dateline.
Exactly. But when a business owner finds embezzlement, do they call the police and do they not touch the body? Oh, God, no. They touch the body, they mess up the crime scene, they get on the computer. These are not DIY investigations, and I’ll just give you one quick example.
Chipotle falsely accused one of their store managers of stealing $680. They said they had her on camera with her hands in the safe. It was retaliation, and Chipotle ended up paying $8 million for falsely accusing her of theft. If you falsely accuse an employee of theft, you’re messing with their life and their liberty. If you falsely accuse them, it’s a world of hurt. Again you wouldn’t go in and touch a dead body—don’t go in and touch a crime scene.
That’s really good advice. I think there’s an aspect to that that makes some weird sense. It makes sense to me as a small business person. It’s just like, “Let me just tinker and see what really happened and try to figure it out.” Because again, it’s that “I don’t want people to know that I lost and maybe it really wasn’t that bad. Let me just start poking around and see for myself.”
I’m writing a book—actually it’s at the editor’s—and I say embezzlement is like porn. The reason I’m writing the book is to get the word out and help people. There’s going to be a checklist, and tips, and examples. You’re not going to go into Barnes and Noble and say, “I’ve been ripped off; where’s the books on embezzlement?” It’s like porn in the fact that you’re going to surf online and you’re going to type into the magic Google, “my office manager is stealing.” They’re going to find me that way.
It’s like Fifty Shades of Grey when it came back, people loved it on Kindle because you don’t want to have people see that you’re reading Fifty Shades of Grey. That’s like my book will be because you’re not going to carry the book in Embezzlement 101 and have your employees see it—they will freak out. That’s why I say it’s a little bit like porn. It’ll be a downloadable awesome book that people won’t see you carrying a Scarlet E for embezzlement. (EDIT: The book has now been released: Embezzlement: How to Detect, Prevent, and Investigate Pink-Collar Crime)
That’s funny because I was thinking about it from the opposite perspective, and maybe you can tell me from your experience. For a lot of the cases that I’ve heard about embezzlement—that usually starts with a little bit of money here, a little bit of money there—and the numbers just slowly grow over time that it’s usually not, “Hey, there was this one-time transaction of $500,000.” It’s 500 transactions of $1000.
Absolutely, it starts small and it snowballs. They never stop, they don’t pay it back. And another thing is they confess. So when you do find out that it happens, you need to have your ducks in a row to capture that confession. You don’t want to do it, you need to have a witness—meaning a good lawyer—to do it. You can’t say, “If you pay me back $57,000 that I think you stole, I won’t go to the police.” That’s extortion.
I hadn’t thought about it that way.
There’s a lot of nuances. Again, it’s not just about the money. And I hate to say it, because I hate to hire lawyers—the six-minute increment—but you need professional help. This is not a DIY because you really can get yourself in a lot of trouble.
One of the other things: I had a woman reach out to me recently. She’d gotten my name and she reported embezzlement and the cop called her back and he said that’s a civil matter. A lot of times, I get hired to be that liaison between the victim and law enforcement because I was in law enforcement. I know what they need, and you can liaison between the two, and you have to sell it and educate law enforcement sometimes about how it was done.
Cops do not become cops to play with Excel; they become cops to shoot things and drive fast cars. There’s the nuances of that and so she was just like, “Is this a civil matter?” I’m like, “No, it’s not a civil matter.” But in this case, this was an outside bookkeeper who kept the dollar amounts small enough that the cops had no interest.
If you steal a bunch of money, the cops are going to have interest, but if you steal $10,000 or $12,000 from five different businesses in three different jurisdictions, the cops are talking to each other and they’re going to say, “That’s civil” and “Go away.” A lot of business owners will say, “It’s only $10,000, I’m not going to hire a lawyer and hire Kelly.That’s another $20,000.” You’re not going to throw good money after bad.
That’s a thing that I see with people that have fallen victim to romance scams. They send the scammer the money, and the police are like, “Yep, yep, the amount of money’s too small, we’re not interested. It’s international, we can’t help you, have a nice day.”
One of the first cases I worked as a fraud analyst for the local sheriff’s office—it was a guy who went around and did fundraisers. He was a professional grifter. He would go from town to town, and he would do just enough that no police department had an interest. But that’s the thing: it’s like, cops talk to each other. We had this alliance and all of a sudden, we could see that this guy was out in this county, he was in this county, he was in this city, and we were able to put together a big case because we sat down and we shared information.
That seems to be almost the theme here: is the more people that have access to the information, the less likely it’s going to happen.
Absolutely. But it’s an insidious crime that happens way more than you ever think about it. My husband goes on a dude trip—pre-COVID, of course—and he talks to new people who come with this group. He says, “When I do, they’re just, like, gobsmacked.” And it’s like, “That happened to my sister, that happened to my family.” Again hashtag “relatable crime.” We don’t relate to Bernie Madoff because he didn’t live with us. These are people we see in our grocery stores.
I have a doctor who directly messages me on Twitter and he or she—and I don’t know which because it’s anonymous—they’re like, “I see the perpetrator in the grocery store, and it just kills me.” The other thing is there is no CSI Embezzlement. These cases take a really long time, and people get incredibly frustrated.
The woman who lost close to $500,000—she waited a year for an indictment. A year. Now this is year two just negotiating back and forth between her and the police. They’re trying to get it, and there’s another podcast where I listened to a victim. Then there’s another podcast I listened to another victim.
One of the things that is really, unfortunately, very consistent is the victims are very, I could say, disappointed in the criminal justice system. They don’t feel that there’s enough punishment, they feel it takes too long, they feel that they’ve had to pay a lot of money to have it investigated themselves. They’re really very disillusioned, maybe not disappointed but disillusioned in the system because we want to think that when someone does something wrong that they’re held accountable.
If you go to law enforcement with a dead body or a serial rapist, they’re going to put the resources on that. If you’re a big profitable company and you get $100,000 stolen, a lot of times law enforcement is just going to say, “You know what? We’ve got bigger fish to fry.” Law enforcement has limited resources. Do taxpayers want a Fortune 100 that can’t seem to put in the proper internal controls to investigate their cases, or do they want someone to investigate a gang, or a serial rapist, or a burglar? They want their money to go to that. It’s like, Bernie Madoff, we don’t feel sorry for his victims which is totally wrong, but it’s just limited resources.
That is a huge challenge. Again, it’s the same thing that I run across with people that have fallen victim to online scams. Their loss is so small compared to the murder down the street, the assault, and the amount of effort that it’s going to take the police to get a resolution.
The people that you talked to—they’ve had a romance scam or other type of, I’m going to say, smaller scams—they talk about it non-stop, don’t they? Because they’re hurt. They’re hurt. They’re also embarrassed. There’s a lot of elderly parents out there that are too embarrassed to tell their children that they have sent money to a Nigerian prince.
Based on the emails that I get, these things happen way more and they’re definitely “I don’t want anyone to know, I don’t want to talk about this publicly. I just want to email you and I’ve done it from an anonymous email address so you can’t figure out who I am.”
Right. They’re just embarrassed. I don’t want to say it’s nothing to be embarrassed about but, again, we go back to Ronald Reagan—and he was not my favorite president in any sort—but trust but verify. Absolutely trust but verify, and that includes family members, doing due diligence even on people who come to your home who say you need a new driveway.
We’ve got this amazing thing that’s called the Google, and use the Google. I would say use the—and maybe this is a hint or tip for your audiences—put the phone number in. That’s one of the easiest things to do because we track each other by our phones these days more so than emails. If you get someone who comes up after a natural disaster, put in that phone number. You’ll never know what can pop up.
All sorts of interesting things happen when you start Googling people that you’re interacting with. I have received a letter that looked like it was a government letter, had a seal on it. “Let me take a look at this.” And it was, “Hey, the State of California requires you to post these mandated employment signs in your employee break room.”
I’m a sole proprietor, I’m the only person from my company, so I don’t think I need to stick them up in my own bathroom at home, but I was just curious, and I Googled the company and looked them up on Yelp. They had a thousand one-star reviews at Yelp because what would happen is the person would call up and, “Hey, I’m interested in the $25. Here’s my signs.” They get a really high-pressure upsell to a bigger package. They would say, “No, I don’t want it; I just want the $25 package,” and they’d get charged for the higher-dollar package. It was just one review after another. When they tried to get their refunds, it was profanities, and it’s like, “Oh, my gosh, I would never do business with this company.” But that’s 30 seconds of due diligence that led me down this rabbit hole of these stories of how this company behaved. I’m like, “OK, never do business with them.”
Absolutely. There’s another thing. There’s not a national database—much as everyone thinks Big Brother can track us all. There’s not a national database that the FBI has of arrests and convictions all over the country. You can have an arrest and not be convicted.
People think that, “Oh, you just put that and you’re a private investigator. You can just access that.” I’m like, “No, I need to know everywhere they lived because there’s some small little towns that don’t fit into the NCIC.” People think that Big Brother is tracking us all, but there’s a lot of things that they’re not very good at and that’s one of the things that they’re not very good at is having a database of that.
As we wrap up here, if people want training for their office and how to protect themselves from embezzlement, or they’ve been a victim of embezzlement, are you interested in dealing with them and talking with them and helping them out?
Absolutely. The easiest way to get ahold of me is to go to the pinkcollarcrime.com website, or you can go to kellypaxton.com website. I’m also on LinkedIn—just Kelly Paxton. I’m on Twitter, too. I post stories. I do a Friday Fraudster, and I post a lot of embezzlement-type stories. It’s just interesting to follow. If you have a question, reach out to me. I will always be willing to take calls.
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