Hanna Hasl-Kelchner: [00:00:00] Could pink collar crime be happening in the shadows of your business. Today’s guest says embezzlement and fraud happens everywhere there’s trust. And when we come back, she’ll explain how it happens when you least expect it and what you need to do to keep your business safe.

 

Announcer: [00:00:18] This is Business Confidential Now with Hanna Hasl-Kelchner helping you see business issues hiding in plain view that matters to your bottom line.

 

Hanna: [00:00:29] Welcome to Business Confidential Now. I’m your host Hanna Hasl-Kelchner and today’s guest is pink collar crime expert Kelly Paxton. Kelly is a certified fraud examiner, private investigator and author of the book Embezzlement How to Detect, Prevent and Investigate Pink Collar Crime.

 

Hanna: [00:00:49] She’s got more than 20 years of investigative experience with an experience in finance that spans both public and private sector. And she’s worked undercover, white collar fraud, money laundering and narcotics cases, as well as embezzlement, conflict of interest and intellectual property cases. So, OK, folks, looks like we’re going to have our own financial James Bond on the show. So fashion your seatbelt.

 

Hanna: [00:01:14] And welcome to Business Confidential Now Kelly.

 

Kelly Paxton: [00:01:17] Thank you so much. I have never been called a financial James Bond. I kind of like it

 

What is pink-collar crime is 

 

Hanna: [00:01:25] By all means. So, Kelly, how common is pink collar fraud and what exactly is it?

 

Kelly: [00:01:33] So pink collar crime is low to medium level employee, comma, primarily women, comma, who steal from the workplace. This term came out and was popularized in 1989 by a criminologist, Dr. Kathleen Daley. So I didn’t come up with it. But it is the one crime women really excel at.

 

Kelly: [00:01:56] And for women in the audience, don’t get upset with me because I’m not picking on women. I’m highlighting the fact that they are in the lower to mid-level positions only. Yet they know where every dime that come into a business and goes out of business. So they are the ones who have access to money.

 

Kelly: [00:02:15] And, you know, you said a little bit about my background. I was a special agent with U.S. Customs. My idea of criminals were bad guys. And most people think of criminals as bad guys. Well, I hate to bring it to you, but it’s not the bad guys that you need to be scared of. It’s the nice people that you work with that, you know, end up crossing the line and they might steal from you. So it changed my view of criminals.

 

Kelly: [00:02:41] And I say I can’t get out of bed in the morning if I think everyone is out to rip me off. We have to trust people. But it’s trust but verify. Does that make sense?

 

Hanna: [00:02:53] Well, that makes a lot of sense. And, you know, maybe if those lower-level positions got paid more, they wouldn’t feel the need to steal. Yeah, but that’s a separate conversation.

 

How common pink-collar crime is in small and midsize businesses

 

Hanna: [00:03:06] Do you find that this kind of pink-collar crime is more common in small and midsize businesses? Do they have more than their share of this as compared to large businesses?

 

Kelly: [00:03:16] Yes. So they say statistics on embezzlement, it only 15% of cases go to law enforcement and a bigger company has internal auditors. They have external auditors. They have tons of resources. And so they generally, and this comes from the Association of Certified Fraud Examiners, they will catch a fraud quicker than a smaller business.

 

Kelly: [00:03:40] And the size of a fraud in a big business is about half the size is in a small business. So the smaller business, who can least afford it, it happens to more often. It goes on longer and it’s actually much more financially devastating.

 

The average size of pink-collar crime in small and midsize businesses

 

Hanna: [00:03:57] Well, those are some fun statistics. What is the average size of a fraud for a small or medium sized business? Can you give us some numbers around that?

 

Kelly: [00:04:07] I’m according to the ACFE, it is about $200,000. But the statistics are really hard because so many people don’t turn their frauds in to law enforcement, which is a whole other thing. Victims have a lot of shame. Which you know, part of the thing why I do this is I want victims to kind of come out of the shadows and own the fact that this happens and employees took advantage of them.

 

Kelly: [00:04:35] You would say and I said this in a webinar earlier today, if you got your car ripped off, Hanna, or if someone broke into your house, would you be embarrassed to say that? Probably not.

 

Hanna: [00:04:47] Probably not. But I understand that they’re embarrassed that somehow someone took advantage of them in a way that they allowed it to happen.

 

Kelly: [00:04:57] Yes. So I am . . . It’s crazy, you know, news stories about embezzlement get posted on the Internet all the time. And you go on to a news organization, like Facebook page and someone will say there’ll be a story about a business that got ripped off there, half a million dollars. And you can’t believe the comments, like I’d like to be so rich that I could lose a half a million dollars or, gee, what were you doing while they were stealing a half a million dollars, like the victim shaming.

 

Kelly: [00:05:30] I am out to stop. Like, you know, these people are ruined, like mentally, because they trusted the employee. The employee a lot of times was their right-hand person. So I say it’s a bad divorce with a lot of money.

 

How the most common pink-collar crime scams are not what you think

 

Hanna: [00:05:46] That’s an interesting way to put it. So how are these pink-collar crimes committed? What are the most common scams?

 

Kelly: [00:05:54] Yeah, you know, hashtag I’m the proud hashtag queen and hashtag, it’s not rocket science. I’m not a CPA, but I can trace money. Money goes from the business to the suspect. The money doesn’t go from the business to Liechtenstein to Panama to cryptocurrency to the suspect.

 

Kelly: [00:06:13] The number one way is forged or unauthorized checks. It’s as easy as that. It’s like hash tag it’s not rocket science. Vendor fraud, expense account fraud. Again, it’s not this sort of money laundering where you get a placement, layering and integration. The money is in the business and it gets to the suspect. It’s pretty basic.

 

Hanna: [00:06:34] Well, then why do these things go unnoticed for so long so that the dollars get bigger and bigger?

 

Kelly: [00:06:40] On my podcast, Great Women in Fraud, I just had Susan Frew, who actually was a victim of embezzlement, and she came and talked about her experience. And it’s as simple, and I don’t want business owners to think I’m being like, snarky by this, it’s as simple as opening your bank statements.

 

Kelly: [00:06:58] You must open your bank statements and you must be the first person to open your bank statement. I have a client who has a million-dollar theft and she would go online and she would look at her online statement. But she did the fat finger caper, which is one day she accidentally hit view check image. So she was going down and mentally in her head she’s like okay check 2512 was $3,000. Yeah.

 

Kelly: [00:07:27] And she’s going down. She accidentally hits view image and check 2512 for $3,000 that she thought was going to a vendor was actually written to her bookkeeper. So this woman is on a mission to get the other people in her very small industry to look at every check front and back, every check front and back. If you don’t get your checks, but have to be the first person to get your mail.

 

Kelly: [00:07:53] And Rita Crundwell who stole $53 million from Dixon, Illinois, which was the hometown of Ronald Reagan, the president trust but verify; she stole $53 million just by writing checks and she always got the mail. So all the artificial intelligence data analytics in the world, it doesn’t do anything if you’re not the first person to get your bank statement, and that seems really kind of crazy, but you’re thinking of bigger things.

 

Kelly: [00:08:22] And a lot of business owners, I don’t know if you do this, they kind of run their business totals in their head. Like I sold a million widgets, I net ten dollars a widget, therefore I have ten million dollars. And they don’t verify it.

 

Kelly: [00:08:37] I was just listen to a podcast with a very successful speaker and he goes Friday afternoons, my money person calls and tells me what’s in the bank and then my accounts receivable person calls and tells me what’s coming in and the accounts payable, what’s going out. He is taking their word for it. He doesn’t, he’s not looking at the bank statements. He’s just taking their word for it, which, you know, I’m tempted to look him up on LinkedIn and say, dude, you need to actually look at your bank statement.

 

Pink-collar crime warning signs to be aware of

 

Hanna: [00:09:09] You need some checks and balances in there for sure. So besides the bank statement, what are some other warning signs or flags that a business owner, a business leader should be on the lookout for?

 

Kelly: [00:09:21] So I call these pink flags instead of red flags because we’re pink color crime. And this is another one that people are like, well, I don’t get this. An employee who never takes a vacation, why don’t they take a vacation? They can’t miss work. Why can’t they miss work? Because they’re going to get the bank statements. They know when they come in, they are going to answer the phone. And when that customer says, my statement is incorrect, you aren’t showing that cash payment I made last month or whatever. Why haven’t you guys paid me for three months? They are there all the time.

 

Kelly: [00:09:54] And, you know, a lot of business owners think that that is loyalty. No, it’s covering up. That’s what it is. So not taking a vacation is another big pink flag.

 

Hanna: [00:10:06] How about one more?

 

Kelly: [00:10:07] Oh, I love this one.

 

Hanna: [00:10:09] These are great.

 

Kelly: [00:10:10] The parking lot audit. And I get this from a colleague of mine, Deanna Campbell. I just used to say, look out the window. She goes, we call that a parking lot audit. Look out the window.

 

Kelly: [00:10:19] There’s a guy who lives about two hours from me. And one day he looks out the window and he sees his administrative assistant drive up in a brand-new Cadillac Escalade. And he’s like, I know what I pay her. And then he starts listening to her and she starts talking about her horses and her stables. And he’s like, I know what I pay her. There is no way. Sure enough. Eight hundred and I believe forty-two thousand dollars she had stolen.

 

Kelly: [00:10:48] So look out the window. If you have a $30,000 year employee who has the brand-new Tesla Model X, that’s a problem. Or if they go to Disneyland, I have this whole thing about Disney. Disney is really expensive. If they take a vacation that is not commensurate with, you know, their salary. So it’s kind of a lifestyle audit. Parking lot audit. Look out the window.

 

Hanna: [00:11:14] So what kind of defenses did these people have, because, you know, when you talk about this lifestyle, it reminds me of a story a friend of mine told me. Her husband was a doctor and they noticed that, yes, you know, one of the staff members was dressing really sharp, designer clothes all the way, and the car, and just a lot of expense account lunches. And they . . . and all of that was being charged to the business. All of it was being charged to the practice.

 

Hanna: [00:11:43] And when they confronted her, she’s like, well, you’ve recruited me to hire other doctors. I need to show that this is a successful practice. So I need the car. I need the clothes. I need all of this. And it took her to court and they lost.

 

Kelly: [00:11:58] Yeah, yeah. That is just pouring salt in the wound. It is so pouring salt in the wound. So funny. I was just on vacation and I’m on this like day cruise and this woman comes up and she starts talking to me and of course, you know, what do you do? And I’m like, oh, I’m the pink color crime lady. And immediately she’s like, Oh my God, I got to tell you my story. And the same thing.

 

Kelly: [00:12:24] And that’s the thing is it’s the relatable crime. Like most people don’t relate if I said, you know what, I tracked down the Bernie Madoffs of the world. They’d just go, oh, well, that doesn’t affect me. But when you say I help small businesses stop embezzlement by trusted employees, they’re like, oh, it’s Kevin Bacon’s. Everyone knows that.

 

Kelly: [00:12:43] Do you know three out of five dentists get ripped off by their office manager, three out of five. The next time you go to your dentist after they’ve maybe given you Novocain and everything; say, hey, I hear this crazy statistic that three out of five of you can get ripped off. And if they don’t say anything, bingo, they’ve been ripped off.

 

Simple steps businesses can take to prevent pink-collar crime

 

Hanna: [00:13:04] I’ll have to do that. I have to go in another month or so. That’ll be a fun conversation. So, you know, we’ve talked a little bit about some of the things a business owner can do to determine if there has been fraud. But what kind of steps can they take proactively to stop it? I mean, besides reading their bank statement, because if they find something there, the checks already been written and probably cashed. So what can they do ahead of time?

 

Kelly: [00:13:31] You know, a big thing is tone at the top. So walk the walk. If you know, if you come in; this is a dentist, poor dentist, I love my dentist, but he’s been ripped off. If I . . . there’s this one story of the dentist who his assistant said, if I hear one more time about his Lexus, BMW, or Tesla breaking down, I’m going to take the drill and stick it in his ear. Now, that dentist has worked really hard to get the Tesla, you know, BMW and whatever car. And it’s not it’s not the employee’s right to judge that. Just be aware of it.

 

Kelly: [00:14:15] And the other thing is living out of the corporate checkbook saying you’re a business owner and you go to a conference, you know, when we went to conferences or convention and you decide to take your family. Great, you go to Key West. You come back. You hand your $20,000-dollar black American Express bill to your office manager and they look at you and they’re like, well, I know you took, the you know, your partner and kids. How do you want me to break it up? And you say to that person, it’s none of your business. Just pay the bill.

 

Kelly: [00:14:47] Now, that person knows you’re cheating on taxes and maybe they can’t even take their kid to the seashore. And the kid texts mom one day and says, I need the last $200 for my school trip and what comes back into their head is, you know what, my boss just left, you know, the IRS is writing off all that amount of taxes. $200. What’s it to him or what’s it to her? And so that sort of walking the walk.

 

Kelly: [00:15:22] Now it’s your business. You can do whatever you want. We have this thing in the fraud world called the fraud triangle, and it’s been around forever. You have opportunity, pressure and rationalization. We say the easiest thing to control for is opportunity. So, you know, don’t have everyone have visa cards or don’t have everyone be able to sign checks.

 

Kelly: [00:15:46] The rationalization part you can control by the tone at the top. You can, I’m going to say, influence it by treating your employees well. This is a crazy story. A colleague of mine went to a business he thought he was getting ripped off. So she dumps all the data and he has to say who has what responsibility. And he comes to his administrative assistant and he says to my friend, he goes, Oh, don’t bother looking at her. She’s too dumb to steal from me. Guess who stole.

 

Kelly: [00:16:15] Now, if I were there, if I were there, I would have said Sally or whatever her name is, let’s go to Neiman Marcus. No, I wouldn’t have done that because it’s never right to steal. Absolutely. But like, can you imagine having a boss that treats you like that?

 

Kelly: [00:16:30] And the other thing is, so say they steal a half a million dollars. They don’t steal it in one check. And the first check is going to be small. Over time it increases and sometimes it increases in a hockey stick sort of way. But that first time they might be mad. They might have had to come in over the weekend while they’re out skiing in Aspen or something like that. And that’s the rationalization part. I really think that you can affect it.

 

Kelly: [00:16:58] So the other thing I like to say is “surprise and delight.” And we’re always supposed to surprise and delight our customers, our clients. An employer should do it by, if they only look at checks over five thousand dollars, you know what. pull one that’s a thousand. If they only look at stuff the last week of the month, pull something from the midweek of the month, you know. Just keep people on their toes so they think you’re paying attention. Again, all the artificial intelligence in the world isn’t going to stop it when it’s just writing checks, or expense account fraud, or vendor fraud.

 

Kelly’s favorite pink-collar crime case

 

Hanna: [00:17:36] Yeah, you know, I know that you have a ton of fraud and embezzlement stories because you do have that podcast, Great Women in Fraud. But I’m curious to know if you have a favorite fraud or embezzlement story that you can share with us before we wrap up.

 

Kelly: [00:17:52] I’m my God, it’s like asking if I have a favorite child, which depends . . .

 

Hanna: [00:17:57] You do, you know you do.

 

Kelly: [00:17:57] Depends on the day of the week. You know, so one thing is, is that most of these people are very likable. And I have only had one victim say I never liked her. And he went on to say I didn’t like her therefore I never gave her access to, you know, my checking account. And of course, I said it very politely at the time and I said, gee well that’s funny, because she still stole $450,000 from you.

 

Kelly: [00:18:28] He goes I don’t understand how she did it. He had a vineyard and a wine tasting room, and so she was in charge of it. Well, when I told him this is how she stole it, he’s like, what? I don’t understand. And I said, so what she would do, when she would use your visa machine she would refund to her various credit cards.

 

Kelly: [00:18:52] Now, that’s a control that, you know, credit card processing companies have stopped. It’s like you can only refund to a card that’s been charged. But back in the day, you could refund anyone as long as you had the, you know, the credit card number. And he goes, he looks at me and goes, I have a wine tasting room. Now, we give them the wine, they try it, and if they like it, they buy it. There should never be a refund.

 

Kelly: [00:19:18] And I said, well, if you looked at your statement, you’d see she was refunding all day long and he just was gob smacked. And the interesting, why I like that case is because she was like this cute young woman. She had done it before somewhere else. She didn’t have a criminal history, but we knew she had done it before because this is the other thing.

 

Kelly: [00:19:37] If they start stealing within six months of working for a new at a new job, they’ve done it somewhere else. Whether or not they have a criminal history, they’ve done it somewhere else. I even say if they start stealing within a year, maybe some time, they might have done it the previous place.

 

Kelly: [00:19:54] So she had done it at the previous place and she ended up getting a, I’m not going to say horrific, but she got a really . . . the highest sentence a judge could have given her because he felt she did not take any responsibility for her actions. So it was kind of one of my first really big cases in the embezzlement world. And so her name was Tiffany, and she was very cute. But I don’t think after spending, I think seven or eight months in prison, she’s probably, you know, quite as desirable.

 

Hanna: [00:20:33] She will need to be to take a little time for self-care, I’m sure.

 

Kelly: [00:20:37] Yes.

 

Hanna: [00:20:39] Oh, goodness, goodness, goodness. Kelly, thank you. This has been not only super informative, but it’s also been a lot of fun. And if you’re listening and you’d like to contact Kelly and learn more about her work, about investigating and stopping pink collar crime in its tracks, or you want to learn about her book, Embezzlement How to Prevent, Detect and Investigate Pink Collar Crime, or of course, the podcast Great Women in Fraud. You can find that information in the show notes at BusinessConfidentialRadio.com.

 

Hanna: [00:21:09] And if you know someone who could benefit from Kelly’s advice, someone who trusts their assistant and some of their employees a little too much, doesn’t have checks and balances in place, please tell them about today’s episode so they don’t get ripped off.

 

Hanna: [00:21:24] Share the link to the show and leave a positive review on your podcast app or at LoveThePodcast.com/BusinessConfidential.

 

Hanna: [00:21:34] You’ve been listening to Business Confidential Now with Hanna Hasl-Kelchner and I hope you have a great day and an even better tomorrow. Thank you.