Bernadette L. Harris is a tax and forensic accountant, #1 best-selling author, business strategist, keynote speaker, and trainer committed to “Keeping Small Business In Business”. In addition to her coaching and speaking practice, Bernadette runs a tax and forensic accounting firm, By The Book Accounting. That business has allowed her to help thousands of entrepreneurs across the country start, run, and grow thriving ventures.

Bernadette Harris On Identifying Insider Theft

Today, I want to talk about a subject that not many people want to hear about. It’s called theft, stealing. Employees, partners, wives, husbands and kids have all stolen from family businesses since the beginning of money. What’s a business owner to do about this? I have an answer for you. You’ve got to hire a specialized detective. Someone who could sniff out of thief and get to the bottom of exactly what’s going on in your company. Our guest today is a forensic accountant and a certified fraud examiner. She’s not getting anywhere near my checkbook. She didn’t just wake up one morning and decide to do this. There’s a story. That’s why we invited Bernadette Harris on to the show today. Welcome, Bernadette.

Thank you, Mitch. Thank you for the invitation and the awesome introduction.

We’re here to talk about you and we’re here to talk about business. Our goal is to serve entrepreneurs. What I want to hear about first is I want you to tell me a little bit how you got started doing this what must be fascinating work.

I always tell at the very beginning and then we’ll fast forward. I started my business about sixteen years ago. I laugh now because at the time it was what I call my hair and shoe money. My husband at the time was the primary breadwinner for my family. My money was just what it was. It was hair and shoe money. I played with it for a little while. Fast forward a couple of years and the marriage didn’t work out and I had to take care of me and my daughter, then I got serious about the business. When we get to the forensic piece, which is extremely interesting, that came about as a result of working with a client who actually had an employee to steal from her. Just having to help her through that because there is an emotional piece that goes along with it, along with the accounting piece of it helping her through that just made me more intrigued and I started studying. That’s when I became a certified fraud examiner. I got a Masters in Fraud and Forensics and just really, really dove into the subject.

It’s interesting how the universe serves up to us what we probably wanted but didn’t know we wanted. Here you are, you were already working as an accountant and you get to work for this one person and now you’re digging deep and finding the fraud and she’s grateful. There’s that whole emotional component. Tell me about that part. What do you do when you have to deliver the news that a loved one potentially or a trusted employee for years has been dipping into the cookie jar?

YFTC 041 | Insider Theft

Insider Theft: That’s the really hard piece. It will never be easy because it’s hard.

That’s the really hard piece. Mitch, I’ll never get used to it. It will never be easy because it’s hard. When you have someone that you trust, someone who you may have given him extra days off or you may have forgiven him for coming in late. When you have someone that you trust then they steal from you, that hurts. There is no amount of words. The best word that I have is sorry because there is no word for that. There is no word to really heal that but insider theft, when you have that, whether it’s an employee or a family member, it’s totally different from any other kind of theft. They play on the fact that you trust them. That’s the reason why they are in the position to be able to steal from you because they are a trusted person.

Let me tell you a story, Bernadette. I think you will appreciate this. I was a young man working for my stepdad at his gift shop in Brooklyn, New York. I helped pack boxes and things like that. As I’m helping customers get their packages to the car, I looked over and I saw Vinnie. Vinnie, was the store manager, slipped some money from the register into his pocket. It was a shock because Vinnie had been with my stepdad for years and years. I go and bring the packages out to the car and I come back and I pull my stepdad over. I said, “Milton, I just saw Vinnie take some money out of the register. What should we do about that?” He said, “Don’t worry about it. Go back to work.” I thought, “That’s a little odd.” Later that night when we got home I said, “Why don’t you do something about Vinnie? He’s stealing from us.” He said, “You know something? I don’t pay him enough and he doesn’t steal that much so it balances out anyway.”

A lot of business owners are in denial. You approach them, “I found things. This doesn’t look right. You might want to look into this.” A lot of times they don’t want to deal with the reality that that could really happen. A lot of times they were just in denial and it sounds like that’s the case with your stepdad. Is that considered denial? Because he really knew but he just didn’t want to deal with it.

The thing about it was that he was afraid to lose Vinnie. Vinnie knew the business so well. Maybe he did know, but it’s hard to tell. He was a trusted person and still after we caught him stealing, it wasn’t like he lived big or anything. He maybe took an extra $40 out, who knows? You’re right, it’s just very difficult emotional problem when there is somebody stealing from you who’s in the company. Let’s go back though if we could. I want to get deeper into your backstory. All of a sudden, you were an accountant and you got someone and then you helped them. Did you change your trajectory immediately? How did you decide that this was the thing you wanted to do and then head in that direction?

No. It was gradual. It was definitely gradual. When I think about when I started my business, which was in 2001, I started my business just doing tax prep. Then I started picking up a few bookkeeping clients. I was doing some bookkeeping for a few small business owners. The bookkeeping picked up a lot. I was doing a lot of bookkeeping and payroll and all that kind of stuff for small business owners. I didn’t enjoy it as much. It was just that guarantee year-round income after tax season but deep down, I can honestly say that I didn’t really enjoy it that much. That’s how I was able to detect the fraud that happened to one of my clients was because she was a bookkeeping client.

When I decided that I wanted to go into forensics, I wanted to become a certified fraud examiner, it was really a gradual process. I went and I got the certification first. Then I went and got my second Masters. I got a Masters in Fraud and Forensics and then I started gradually working it too. I had one foot over in the forensic field and I was taking a foot away from the bookkeeping. I’ve gradually moved out of it. I don’t do bookkeeping anymore. I have some people that I may contracted out too but I don’t do that piece anymore. Now, I just focus on tax and forensics. I’m either doing tax returns or helping clients either solve the puzzle or prevent it. I really want to do more prevention. Prevention is one of those things where people don’t realize they need it until after they need it.

Tell me a little bit about how you scaled your company. I know you’ve had at least 1,000 clients. How did you get there? I know you did everything yourself at first. I have a feeling you’re not doing everything yourself anymore.

No, I can’t. It’s really about learning how to leverage. Leveraging that means finding the right people to do the right things to support you. I found the things that I enjoy doing one and the things like I have to spend my time doing the high-income item things. I can’t answer the phones and schedule appointments and things like that. Not that those things aren’t important but they don’t generate income, not directly anyway. I have to make sure that I’m focusing my time and energy on the things that generate the most income for the business and then I have support staff who support me in other areas. I have people who support me so when I have a client that needs bookkeeping I don’t have to turn that client away, but I don’t personally do the bookkeeping. I have a person that will do the bookkeeping. I have an awesome admin person who takes care of all of the administrative stuff and just makes my life so much easier.

Technology has helped us to scale. We do a lot of stuff online. Clients can schedule appointments online. They can pay their invoices online. They upload their information. We have a secure portal that we use. They transmit their documents online and my assistant takes care of it and files it. We have a server. Whatever I need, I just go to that client’s file on the server and it’s there because I’ve already put those things into place. That’s one of the biggest things that have helped me to scale: technology and getting the right people on your team.

That’s really the first lesson of any entrepreneur is that if you want to stay small, then don’t delegate because that’s where you’re going to be. You have to delegate. You have to develop systems. You have to trust other people to help you even if they don’t do it as good as you do it first. I would assume at this point, Bernadette, that you have other accountants that you probably work with on a contract basis as needed. Is that right?

Right.

Were this people certified or do they fly under your flag?

They fly under my flag. For instance, if I’m working on a forensic accounting case and there’s some tedious stuff that needs to be done, clearly I don’t want to bill the client in my billable hour rate for compiling an Excel spreadsheet or exporting stuff from QuickBooks or something like that. I have a bookkeeper that I can delegate certain task to and say, “I need this report, this report, this report.” Once I get the report, then I can use those reports to do my piece. I have not hired anyone with my credentials as of yet. That’s a next year goal, is to be able to bring someone that is at least close. I don’t know if I’ll find another person like me that’s going to work for me also.

I’d love to have you tell me a story or two about some of the weirdest things that you discovered and how you went about doing it. If you have a mystery to tell us, a mystery story, I know my audience would love to hear that.

As far as the fraud goes, I’m telling you, everything that you can think of probably I’ve seen it. I’ve seen employees used their employer’s credit card to pay their bills at home like their utility bills and buy groceries and gas for their car. I’ve seen them pay for things and they’ll pay for things that the employer is also paying for so it blends in. Some of the stuff is just outright blatant. One of the great things about Amazon is Amazon sells everything. As a forensic accountant, that’s also a bad thing because Amazon sells everything. When I see Amazon on the credit card statement or on the bank statement, I don’t know if this was for an ink cartridge or if it was for a pair of shoes. Seeing those things, those have all been whoa stories.

I am always amazed and disappointed at the people who steal from Little League teams and churches and non-profits. Not to say that a bigger or a for profit organization deserves someone to steal from them, but these are little kids. You’re going to steal from a little kid basketball team or PTA or a booster club stuff like that or your church. Those are the really, really sad cases. I’m still not used to it, Mitch. I don’t know if I will. I hope I don’t because then I think that if I ever get used to this I’m just afraid of the person that I’ll become.

The next step of course is now we have to add another title to your name. We’ll call you Bernadette, The Hitman, because we’ll give you a gun and you can go, “Now we caught him stealing, what do you want me to do next? That’s going to cost extra, I’m sorry.”

I don’t want to go that far. Not at all.

Now, let me ask you a question from a different perspective. We have lots of business owners listening to this show. What are the signs? What should we look for as business owners even if we don’t think? What happens if we think have a suspect, one of those feelings that says, “I don’t know?” What do we look for?

YFTC 041 | Insider Theft

Insider Theft: There are always signs and red flags.

There are always signs. Let’s talk about some of the things that are red flags to make you at least say, “Maybe I need to call Bernadette to take a look at this.” If you have a bookkeeper who is taking care of your financials and they are constantly late with the reports. You’re asking for reports and they always have an excuse why they can’t get you the reports, that’s usually a sign. If you are constantly pushing for the reports and you get a lot of pushback like, “I’m going to get them to you on Friday.” Friday comes and goes and you never get the reports. Those are usually signs that you may want to take a look. There are also behavioral signs from the employees that may say, “There is something not too right here.”

This is a cooler acronym that I created. The acronym is FRAUD. These are some of the characteristics of someone who may be. I’m not accusing anyone of anything but these are some of the characteristics. The F stands for flashy. When you have an employee who’s probably living beyond their means or they’ve recently upgraded from a Corolla to a BMW or now they have this really big wedding ring they’re flashing on their hands, then that might be a sign that you want to pay attention to what they’re doing. The R stands for recently divorced or devastated. Employees who go through divorce or any kind of devastation. It could be health issues or anything like that. Those types of situations oftentimes put people in a pretty tough position financially because you go from two incomes to one. Or if a spouse is sick and lost their job or they have lots of medical bills or things like that. You want to pay attention to those things because those things maybe motivators for them to take a little bit of cash out of the cash register. A, always at work. Sounds like a really great thing; an employee who’s dedicated and always there. An employee who’s always at work sometimes is an employee who is there all the time because they have to commit their fraud in privacy. They do it before work or after work and they don’t take vacations because they are afraid that you may discover their fraud in their absence.

Then, unusually close. Sometimes when you have employees who are colluding together, maybe they’re always taking lunch together or whispering in the break room or even taking vacations together, I’ve seen that too. You just want to pay attention too if the accounts payables and the accounts receivables person is always talking. You might want to pay attention to make sure that there is nothing fishy going on. The D stands for drowning in debt. Lots of people have debt. There are some people who handle their debt better than others. Those who don’t handle their debt well might be getting phone calls at work all the time from bill collectors or dodging cellphone calls. They keep hitting the red button during the workday or something like that. You might want to pay attention to things like that. Those are some of the signs of a fraudster. In 70% to 80% of the cases, one of those characteristics was present.

That sounds like a pretty broad spectrum of things that might be going on at your job today. Listeners, if any of those things sounded familiar to you and you felt that little tinge inside your stomach that says, “Maybe I need to look at that,” then let this be a warning and go check that out.

Just pay attention. Mitch, social media has made it so that we can spy on people without even breaking the law because everybody post everything on social media.

You mean they’re going to post things like, “Guess what I stole from the boss today?”

No, they might not but they may post a picture of them and a co-worker on vacation together or out to drinks together or their new car. People love posting pictures of their new car or they may be dogging out their ex-husband because he’s whatever or ex-wife because she took all the money, whatever the case maybe. There are things that people share on social media that could be an indicator to some of those characteristics.

Again, you have to know where to look. If you were to advice business owners today, if they had that little feeling, that little twinge that when you read that list off of what fraud stands for, what do you think they should do first besides call you?

You want to take a look. You want to pay attention. A lot of business owners don’t look at their bank statements. They don’t look at their credit card statements. Just paying attention to your credit card statement or to your bank statements, those things. Because I’m trained to do it and I have an eye to see those things, they jump right out at me but as a business owner, you should have an idea of who you’re spending money with. When you see stuff that’s a little out of place, those things should cause you to question what’s really going on.

There’s a story that’s in the book and I’ll share the short version of the story. In this story, it was a small business owner. He had a t shirt shop, very, very successful t shirt shop. He hired this lady as his bookkeeper. She had a great resume and impressive background, twenty years of experience, and he was highly impressed with her. She came in and she was showing him ways to be more efficient. He’s just got really, really excited about it, about working with her. Fast forward, over a seven-year period of time, she had stolen $325,000 from him. His business was doing really well and then it started doing not so well. He was blaming it on the economy. Lots of businesses took hits in 2008, 2009, 2010. He was blaming it on the economy and it was really because she was stealing.

Here are some of the signs. She was wearing a $20,000 wedding ring. She invited her boss and her co-workers to her wedding and she was bragging about the fact that she bought her husband a Rolex for his wedding gift. She said that she had an inheritance and that’s where she got it from, but she was stealing money from him. In the meantime, he’s liquidating his retirement account. He sold two of his homes. All these things just to keep the business going and she’s steady stealing money as he’s liquidating. He had to go and get married at the courthouse because he couldn’t afford a wedding and here she is walking around with a $20,000 wedding ring on. He just was not paying attention. He was not paying attention at all. Her theft started out with a little extra on her paycheck. She got away with that and then she just started writing herself checks and she just started doing stuff. That’s what they do. They test the waters to see if they’ll get away with it. If they do, then they’ll try something else and they’ll try a little bit more and a little bit more. You’ll be surprised. Most frauds, it takes eighteen months to discover the fraud.

I would assume when someone who is carefully planning a fraud like creating a false vendor and then submitting invoices not so much. It could be a stupid fraud too like someone literally takes their credit card that they were issued by the company and goes buy a dinner for themselves or something. That’s so obvious.

They are obvious but not so. When you have employers or business owners who aren’t paying attention to this stuff, they don’t. I’m working on a case right now where the person who is stealing all this money is also the person who is preparing the report. She just made the reports to say what they needed to say. She had every single transaction in the system and QuickBooks in the way that she categorized them. She categorized them as if they were legitimate business expenses.

If somebody were to detect that maybe there’s something wrong, maybe there’s a false invoice or history of invoices from a phony vendor, what should be their next step? Should they call the cops?

No, because the police will not issue an arrest warrant unless you have proof. That’s what forensic accountants do. We basically will come in, discover what happened, how much happened, and assert that no one else could have done it. Sometimes, the theft is not a theft. It’s just bad business or bad bookkeeping. You have to have a report. Usually, the police will not arrest without a report from a forensic accountant that will show not only that the crime was committed but that no one else could have committed it but this person.

You go and get a forensic accountant and you hire that person. Now, that person who’s stealing is sitting there knowing that you’ve done this. What’s going on here? Do you think they’re going to get suspicious and maybe quit?

It’s possible to do that. You can hire a forensic accountant and that person not know. For me, when I do a lot of times my investigation, I just need bank statements and credit cards. That’s what I start with. If I can get a copy of the QuickBooks file or access to the QuickBooks file, I’ll look at it. The QuickBooks file is going to show whatever they wanted to show. That’s usually what small business owners are using is QuickBooks. The QuickBooks file is used later to show intent because if the QuickBooks file shows that they categorize something as a business expense knowing that it wasn’t, then there’s my proof of intent. The bank statements and the credit card statements are going to show me the actual stuff that happened.

If you are called in or a forensic accountant is called in and now the forensic accountant confirms that the person that you suspected is in fact stealing and then produces this report, then do you go to the police?

Yeah, with the report.

You literally walk into the police station and say, “I have a problem. I have someone stealing from me. Here’s the report.” Now, what are the police going to do?

At that point, they can issue an arrest warrant for that person.

Let’s play this out a bit. This is a different path that we’ve ever taken before but I’m really interested in this. I think it’s going to be valuable to people to hear what you have to say. Once an arrest warrant is issued, do the police show up at their door at 2:00 in the morning and drag them out of the bed? How does that work?

It depends. I’ve seen cases where the police come and arrest them at the job. This isn’t my case. I’m borrowing this story from someone else. This was one of the teachers at the fraud conference that I attended a couple of weeks ago. He said that he had a case and he wanted basically that employee to take the walk of shame. He wanted them to be taken out of the job with handcuffs so everyone in the building could see that this is what happens when you steal from the company. The person was still at work and they had the police come and arrest him and take him out from the job and took him to the police station from there. That sends a serious message to the staff and everyone else because everybody’s gasping, “What’s going on?” They did the investigation and the person who was stealing was none the wiser. They had no idea what was going on.

It’s essential that you keep it that way. Let me go to the next step still. Here we are now, the person’s been arrested. Does the court keep them in jail? I realize this is somewhat procedural but I’m just curious. Do they get away with it ultimately? Do they pay a legal fine? Like this guy who lost $300,000 and had to get married at city hall while the thief had a beautiful wedding. What happens to someone like that? What happened to her?

YFTC 041 | Insider Theft

Insider Theft: A lot of times, this is considered a white-collar crime and white-collar criminals do not get long sentences.

She got arrested. Here’s the bad part, Mitch. A lot of times, this is considered a white-collar crime and white-collar criminals do not get long sentences. Typically what happens is you get a person like this, they will get arrested. They may go to jail. They may serve twenty months in jail or something like that. It’s not a lie. It depends on the case. It’s a case-by-case basis. I honestly have studied hundreds of cases and I cannot find the rhyme or reason. I’ve seen cases where a person had stolen a whole lot more and gotten less. It’s crazy. I don’t know. Typically what happens is if it goes criminal, some business owners do not pursue it in criminal court. That’s one thing but we’ll just talk about it from the criminal aspect. If it goes that way, then they may get jail time and be ordered to pay restitution. In the case of the bookkeeper who stole the $325,000, she has to pay restitution. Here’s the thing though. She now has a felony record. Where in the world is she going to get a job to work to pay back $325,000?

That is the problem. Not only that, did the business owner have to suffer the expense of a criminal defense attorney and all that?

Yeah. He ended up having to file bankruptcy.

Catch this as early as you can before it destroys your life. I’m very grateful for Bernadette to explain it to us today. Understand the damage that this can do to your business, into your life, into your family. It seems obvious but don’t be like my stepdad and just say, “Don’t worry about it. How much could he steal?” This is serious stuff and it can really hurt you. Bernadette, we’ve gotten some great stories from you today and we certainly got some tips as to how to detect and potentially prevent this. What do you think is the best thing to do when someone is thinking about hiring a forensic accountant? What should they look for besides the degrees? Is there any other ways that people find people like you?

There are lots of forensic accountants. We don’t all do the same thing. For me, as a forensic accountant, I specialize in occupational fraud. There are lots of other types of fraud. There’s government and corruption and bribery and all that kind of stuff. I don’t do that. I focus solely on occupational fraud which is when you have employee theft, insider theft, employees who steal from you, misappropriate funds, things like that. As a small business owner or medium-sized business owner, because small is relative. According to the Small Business Administration, there’s a big gamut of people who fall into the category of small. As a small business owner, you want to get a forensic accountant who is knowledgeable about small business and knowledgeable about occupational fraud. It’s totally different than some of the other stuff that’s out there.

Bernadette, that’s great information. Thank you so much. I wanted to ask you a couple of questions here. As we get to the close of the show, I always ask my guests these questions. Who, in all of space and time, would you like to have one hour to enjoy a walk in the park, a quick lunch or an intense conversation with?

I actually would love to have lunch with Madam C.J. Walker. She was the first female millionaire. She was born in 1800s. I love to talk to her about what she did and how she did it. Just pick her brains. Just hear some of her stories of triumph. For one, women were not business owners back in the early 1900s and definitely not African-American women. I would love to have a conversation with her.

What a great choice and I’m sure you will enjoy that walk in the park for sure. The grand finale and this is the ‘change the world’ question. What is it that you are doing or would like to do that truly has the potential to literally change the world?

I want to see fewer businesses fail. That’s why I do what I do. That’s why I teach people how to start right, how to protect themselves, what are the things that you want to pay attention to. Education is a big piece of what I do because I want to see fewer businesses fail. Entrepreneurship changed my life. It gave me something that I never thought I could have. I never intended to be an entrepreneur. I thought I’d work a job for 30 years and retire. Entrepreneurship has totally changed who I am. It changed just my entire life. I was a single mom for a long time and being an entrepreneur helped me be a better mom. I just want that for other people. Most people are really, really good at what they do. They’re really good. If they bake cakes, they bake awesome cakes. If they fix cars, they fix cars better than anyone else. The struggle is usually just knowing how to run the business and that’s what I do. I teach people how to run your business so you can stay in business.

That’s a great mission and I’m here to help you with any way I can. Along those lines, I would like to let listeners know about your book. You have a book called Business Blueprint 2.0. What’s that book about?

This was the book that I wrote to basically teach people how to start, run and grow their businesses the right way. After working with entrepreneurs for so many years and seeing them all make the same mistakes over and over again, Mitch, I thought, “Maybe if I write a book and just show people how to do it the right way, then fewer businesses will fail.” That was the reason why I wrote that book, is just to help people. It’s a guide. It’s something that you can refer back to at different stages of your business. The first half of the book talks about just the setup stuff, things that you need to have in place and the second half gives you more of the growth strategies and things that you can do to grow your business and do it the right way. That’s the Business Blueprint 2.0.

Is that available on Amazon?

It is available on Amazon.

I understand that you have a free gift today for listeners. What might that be?

Image and caption title of book Did You Hire a Fraud

I’m going to give them a free chapter to both books. I have a free chapter from Business Blueprint that will definitely help them and help them to decide if they actually want to purchase the book. I also want to give a free chapter to my latest book which is called Did You Hire a Fraud? Just to give a little bit more detailed information of the stuff that we talked about today. Just to help them as far as making sure that they didn’t hire a fraud. If they did, then let’s talk about what we need to do to fix that.

To reach you directly, people would go to what website?

ByTheBookAccounting.com and on that site if you want, you can schedule a free call with me to talk about whatever it is, if you want to start a business or if you think you have hired a fraud. You can schedule a call and let’s talk about it.

Listeners, if you’re in that category or either category, by all means reach out to Bernadette. She would be delighted to talk to you and very generously so. Thank you, Bernadette, for your time today. I sure have learned a lot and I hope listeners have too. I hope to have you back again sometime soon.

I would love that, Mitch. Thank you for having me.

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