[00:00:01.130] – David Maples

Do you have $125,000 sitting around your office that you can afford to set on fire? If not, this episode of The Buck Stops Here is for you. We’re talking about a natural disaster that exists in your office and it’s a matter of when, not if, that it will strike you. This episode is all about embezzlement with an interview with Deborah Dalgo, founder of Embezzlement U and iWorkSmart Media on this episode of The Buck Stops Here.

 

[00:00:40.030] – David Maples

Hello and welcome back to another episode of The Buck Stops Here business podcast. I’m your host, David Maples, and welcome to season two, episode three. And today I’m really excited to bring an interview to all of you out there listening. We are going to talk about the elephant in the room today, the big E word. No, we’re not talking about economics, enthusiasm, elegance, empowerment. We are talking about embezzlement. That’s right, boys and girls, sports fans, all of you out there, we are talking about embezzlement. And just a couple of facts before we get into the meat and potatoes of this, according to some studies out there, 80% of embezzlement happens to small businesses. And those are defined as companies under about 150 employees.

 

[00:01:26.950] – David Maples

And with that, 30% of these small companies actually go out of business once they discover the embezzlement because they can’t sustain the loss. The average loss is over $120,000, and about 25% to 30% of the losses are over half a million to a million dollars. So, if any of you guys out there can absorb that, you probably aren’t in that small business category. But for those of the rest of you out there, I’d like to introduce you guys to Deborah Dalgo today. She is the founder of Embezzlement U and a company called iWorkSmart Media. She is accountant by trade, but don’t hold that against her. She’s been doing this work for over 35 years, ranging from consulting, not for profits, and in many other public sector positions. So without further ado, I’d like to welcome Deborah to the show. Glad to have you with us here today.

 

[00:02:23.900] – Debra Dalgo

Thank you. Thank you for having me.

 

[00:02:26.080] – David Maples

Glad to have you on. So, just tell us a little bit about- Okay, so just to start at the beginning here, you started Embezzlement U to educate business owners about kind of this problem. What made you do that or maybe what made you think embezzlement was really important for business owners to address?

 

[00:02:49.270] – Debra Dalgo

Yeah, so for the majority of my career, I didn’t realize that it was a major issue. I was actually working for a dental office management consulting firm, and the consultants would frequently have dentists call the office saying that they suspected that they were being embezzled and they didn’t know what to do, they didn’t know who to turn to. And so I actually started looking into becoming a certified fraud examiner so that I could help these dentists. So I started reading books, articles, pretty much anything I could get my hands on about embezzlement. And the more I read, the more I studied, honestly, the more disturbed I became that everyone demonized the embezzler. I know that sounds strange and I don’t think stealing is right, but I was a little bit disturbed by that and I think mostly because I’ve been in that chair for so long. I, back in the early 90s, had my own bookkeeping clients that I did from home. I had a large association and for all of those clients I had full check signing authority. They had major, you know, big sums of money in the bank accounts and I didn’t have anyone watching over me.

 

[00:04:09.150] – Debra Dalgo

I had no oversight. And I just can remember, like I said, it was in my twenties and I can remember sitting at my computer at home and all of a sudden I think, gosh, I could. And then I knew there was something in me that just knew don’t go any further with that thought. That’s dangerous territory for you to be traveling down that road. You don’t want your mind to go there. And so I never did. But I still and still fast forward a few decades, a lot of control over other people’s money and I stay amazed at the trust level that’s placed in me. So, I can totally see how people can go there. Unfortunately, what sprang from that was just me wanting to not only educate business owners and preventing embezzlement because I’ve read enough on their side too. It’s a very emotional experience. It’s not just a monetary hit to these people, it’s also very emotional. So, I wanted to not only help them, but I also felt like we need to begin educating the trusted employee. And so that’s where I started. I wrote Integrity Ed and I came up with that because I think of this as drivers ed.

 

[00:05:40.270] – Debra Dalgo

From that one class that we take we all go on to drive for years, right? For decades. And so I wanted to create a course for these people because we really shouldn’t be giving the keys to the kingdom, if you will, to people that have never really even thought about embezzlement. They haven’t been prepared for handling someone else’s finances. And so very often embezzlement, we will begin with the rationalization. I’ll pay it back. And I totally believe that people believe that lie that they’ve told themselves. Often when they’re caught, they seem shocked and disoriented themselves. And I believe that is a genuine reaction. I believe that they never expected things to get so far or out of control because they really thought that they were going to pay it back. And so Integrity Ed can really open up their eyes to the truth of embezzlement. And you can think of it like photos that you look out of a horrific accident that motivate you to drive slowly, to drive safely. Right? So that’s how I think about Integrity Ed. So, that’s how I came out of this, is not just wanting to educate the business owner, but the trusted employee as well.

 

[00:07:00.390] – David Maples

That’s interesting because I think most of the people listening to the show who run businesses, it’s natural reaction to kind of demonize that person, as you would.

 

[00:07:10.840] – Debra Dalgo

Sure. Of course.

 

[00:07:11.470] – David Maples

Right. But it’s interesting, a lot of people it’s kind of like about removing gold bars out of a bank vault. I think it’s human nature to be like, well, what if one of these ended up falling into my backpack here or something like that. I had a friend of mine once who got a job driving an armored car years ago. And I remember they to take a lie detector before they did it. One of the questions was, have you ever thought about robbing a bank? And the answer is like, yeah, the first time I saw a movie where they robbed a bank, I thought about like, oh yeah, they did this wrong. We should have done that the better way. Right? But I guess one of those things, a lot of people, something you said there that really kind of struck me was that-

 

[00:07:48.470] – David Maples

On The Buck Stops Here, we say that everybody is responsible for everything good or ill that happens to their company. But a lot of times we’re just trying to kind of offload-

 

[00:07:56.450] – David Maples

I mean, they’re so busy most of the time it’s like, well, I need to trust this bookkeeper and I don’t need to look at all that. I don’t want to come in and sign a check every time. And so that’s a major thing. Before this interview, I did a little bit of research on kind of the fraud thing and there was a thing called the fraud triangle. Can you, can you kind of tell me? It said it was like motive, opportunity, I don’t know. But can you explain a little bit about what that is?

 

[00:08:23.230] – Debra Dalgo

Yeah. So, criminologist, Dr. Donald Cressey, came up with the fraud triangle in the early fifties to explain why people commit fraud. Amazingly, it’s still well known in anti-fraud circles. And so the first part of it is opportunity. It’s where the employee goes about their day-to-day task. Just like me sitting on my computer going about my day-to-day bookkeeping task. Right? So, they see these opportunities to steal and presumably not get caught. Next, is pressure or motivation. So, the employee will feel some kind of motive to steal. They have to have a motive, according to the fraud triangle, to steal. That can be things like addictions, gambling, drugs. It can also be they just want to increase their standard of living. We used to say keeping up with the Joneses, but I think now we have to say the Kardashians. Right? Often, people just want to increase their standard of living. And then last on the fraud triangle is rationalization. So, employees have to rationalize the act of stealing because it’s inconsistent with their character. They don’t see themselves embezzle- Embezzlers do not see themselves as criminals. They certainly don’t identify with the man who walks into a bank and robs the teller at gunpoint.

 

[00:09:53.390] – Debra Dalgo

So they have to justify this act in their minds. They have to make a wrong right in their minds. And psychologists call this cognitive dissonance. It’s this mental wrestling match, right? Because we’re a good person, but we want to do this bad thing. So ,how are we going to make both of these things happen? So, as human beings, we are very good at this. We are very good at rationalizing behaviors. And I think that if you were to take embezzlement and say, gosh, why is this such a big problem? Why has it been such a big problem forever, and it continues to be? And I think this is one big area that we could zoom in on, is just that if there’s opportunity, if there’s pressure and motivation, rationalization is not going to be the difficult piece because we are really good at rationalizing our behaviors.

 

[00:10:46.590] – David Maples

Okay, so this brings me to my follow up question on this, okay? So, what percentage of employees at least there’s two things, opportunity and pressure. Because you can see how it’s really easy to think that I’m down on my luck right now.

 

[00:11:01.640] – Debra Dalgo

Right.

 

[00:11:02.230] – David Maples

Okay, so I’m moving gold bars. I’m just using that as an example. I have access to the gold bars, right? And I have a health issue. And I got screwed over by the insurance plan that the company provided for me or whatever it is. Or maybe I got passed over on my last raise. And I really feel like- Or I’ve been added on a whole bunch of extra job responsibilities. I could see it’s kind of that slippery slope, right? Kind of getting to that whole- So, what percentage of employees will steal if they were given the opportunity?

 

[00:11:35.230] – Debra Dalgo

Well, fraud experts tend to apply the 10-80-10 rule to embezzlement. They say that 10% of employees will never steal. These people are highly ethical. Another 10% are at the opposite end. They will steal every chance they get. And within this group are what’s called serial embezzlers. And this is precisely why business owners should be conducting pre-hiring screening, I should say proper pre-hire screening. And then the remaining 80% are what’s called situational. This is people that could be swayed into stealing, I guess, if they’re given the opportunity, if they have the fraud triangle, basically. And 80%, that’s 80%, that’s a lot of people, that’s a lot of people that could potentially be swayed into stealing if they, under the right circumstances, I guess you could say.

 

[00:12:37.040] – Debra Dalgo

So, all right, so let me, let me break, let me break this down because that’s a huge number. So, the background checks really aren’t going to catch the 80 percenters. They’re going to catch that they might help prevent that 10%. You call up people, and then you find out the things you see. There’s a history of doing these things. And there’s 10% people, I guess you always want to make sure that they never work in your organization, because those are it’s kind of like an inviting a cancer in. It’s a terrible thing.

 

[00:13:04.220] – Debra Dalgo

Absolutely.

 

[00:13:04.750] – David Maples

But you can do a lot of preventative things on the front end for that that are like the background checks or checking references and stuff like that. But that 80% of people- I know anybody, okay. I know you’re listening to the podcast now, you’re like, oh, I have all the 10% people here. If you are listening to this right now or watching it, that is a lie. You are excelling yourself. It’s not true. But the 80% people so that’s one of the big things about it. This sounds like part of the reason you created this is because it sounds like part of it is educating these people on- Well, you said yourself. You’re working at this stuff, and you thought, Gee, I could, and you stop it. But I guess it’s just following down that logical slope.

 

[00:13:52.100] – Debra Dalgo

Right.

 

[00:13:53.450] – David Maples

So, that’s really interesting, and it sounds like it affects- I read some numbers on this, and some of them are insane. Like, in the United States, it’s $625,000,000 or something like that annually, and it’s just and they said it is the most prevalent kind of non-prosecuted, white collar crime.

 

[00:14:15.310] – Debra Dalgo

Right.

 

[00:14:17.570] – David Maples

Okay. And I read some stuff saying it effected small and large businesses. But, from what you know, is this more of a problem at big businesses or small businesses?

 

[00:14:28.470] – Debra Dalgo

Well, I think small businesses are very exposed to embezzlement just because they don’t have the number. They generally have just a few employees. They don’t have systems in place. So, this makes them definitely more exposed to embezzlement. They’re more open. They don’t have, generally, internal controls that a large corporation would have. They don’t have annual audits, and they are, typically, have someone else in the organization that has other administrative duties doing the bookkeeping. Sometimes you’ll see the receptionist who’s doing the bookkeeping. Sometimes it’s the office manager. It’s someone else that usually has other administrative duties that takes on the bookkeeping, and they don’t have any oversight. If they do, it’s very little. If small business owners usually maintain any level of control over their bookkeeping, it’s to sign checks. But you and I know that there’s a whole lot of other ways that people can steal, especially today in the digital age.

 

[00:15:37.210] – David Maples

Yeah, and once that money is gone, if they move it from one bank-

 

[00:15:42.830] – Debra Dalgo

It’s gone.

 

[00:15:43.790] – David Maples

It’s gone.

 

[00:15:44.720] – Debra Dalgo

In the majority of cases, they do not recover. I mean, restitution is even if you do have the proof and you prosecute and you get a restitution order, it’s very little. Normally what you hear on the news is that people are paying $25 a week, and they’ve stolen $800,000 or whatever. So, the majority of the time it’s been spent, it’s been spent on gambling, drugs, it’s been spent on occasionally you will see where they’ll hold an auction for the different things that they collected and that’ll go back to that, to the victim. But still, that’s still very small compared to what people steal when this goes on for years.

 

[00:16:31.710] – David Maples

I think we’ve established this as a major problem. So, for the listeners out there, what can they do to help prevent- Because it sounds like it’s not a matter of if, it’s a matter of when. If your company is in business long enough, you will run into this problem at some point in time. You’ll either make a bad hire and get one of those ten percenters or you have a situation where somebody is on hard luck or has a problem or a substance abuse problem that happens.

 

[00:17:02.780] – Debra Dalgo

Right.

 

[00:17:03.300] – David Maples

And they’re taking actions on that that damage the company. So, what can we do to help prevent this?

 

[00:17:12.650] – Debra Dalgo

Yeah, so we mentioned the large corporations generally have a lot of employees. They have an accounting department which makes segregation of duties easier. They have audits. They have these things at their disposal that small businesses do not. But what that means is that small business owners need to be more involved. And if it’s not them, then it needs to be their spouse or someone else that needs to have some level of control and oversight. I say this a lot, is that if you do nothing else, if you do nothing else, let people know that you’re watching them. They know your habits, they know what you’re doing, they know what you look at, they know what you don’t look at. They know your habits and they’re watching you. So, it’s important for you to be watching them just to let them know that you’re watching them. That can be a very strong deterrent in itself.

 

[00:18:13.630] – David Maples

I remember years ago they were saying that a whole bunch of retail stores just put up camera- I mean, cameras used to be, they’re much cheaper now, but they would just put up blank camera pods, right? It would just be a plastic dome in the ceiling. But they had a huge impact on theft because people thought they were being watched.

 

[00:18:33.610] – Debra Dalgo

Yeah.

 

[00:18:34.210] – David Maples

So, I guess it’s kind of the same thing, just letting them know, like, hey, we look at these things, we audit these things. I guess you should be doing those things as well. You shouldn’t just be saying this to people.

 

[00:18:44.820] – Debra Dalgo

Yeah, the truth is that people are not going to steal if they think they’re going to get caught.

 

[00:18:51.850] – David Maples

But this feels like a very weak form of protection.

 

[00:18:56.650] – Debra Dalgo

It does. It does. Right.

 

[00:18:57.050] – David Maples

It sounds like ultimately you need to have a plan of some kind in place.

 

[00:19:01.090] – Debra Dalgo

Yeah. So, there needs to be internal controls. What we call in the accounting, the auditing world, is internal controls. You need to have internal controls in place, and that’s procedures and systems that ensure accounting reliability. They safeguard, not only against fraud, but it safeguards against errors as well. So, to have internal control procedures in place and not only put those things in place, but you have to implement them and monitor them. It’s so easy for especially small business owners to get busy and to let things, especially something like this, just fall by the wayside. And it’s important that they don’t. It’s really important that they just maintain some kind of level of control and guard against that getting comfortable with one person and thinking that they would never do this to you. And just thinking, this person is my friend, this person’s been here ten years, this person would never do that. That’s where business owners, I think, go wrong, is that they become, you could say, too busy and too trusting.

 

[00:20:12.690] – David Maples

They said that. One of the things that, and I just read this somewhere, like I said, just preparing for this interview today, and I read something and said, oh, rotating employees amongst the duties, like if rotating your bookkeeping person into a different role in the company and rotating somebody else in can actually have a huge impact. And I thought that was interesting, but then I was like, but what small business has the means to do that, right? In your opinion, because you’ve done this for a while and you’ve said, as you said, kind of both chairs, you’ve had the opportunity, and now you’ve consulted with companies now on doing this stuff, and now you created a tool to help do that. Why would companies not put a plan in place? If you recognize this as something that will happen to you at some point, why would you not do it?

 

[00:21:00.770] – Debra Dalgo

I think that business owners get too busy and I think that they have their hands full just trying to run the business, right? So, it’s just easy to have someone else do this thing to do the bookkeeping, and to just not see it as a problem. I think that’s probably another thing a lot of business owners don’t realize. I think it’s becoming pretty well known in the dental industry these days because for so long it’s been older. The hardest hit industry is the dental industry. So I think it’s becoming pretty well known out in that industry amongst the consultants that dentists need to do to be more aware. But I think, generally small business owners don’t realize that this is the problem that it is. If they do, then they don’t- I think that they rationalize, my person would never do this to me. They think that because this person has been with them for so long that they would never do their friends, their friends with my wife or whatever. But, I mean, that’s when embezzlement happens. It happens most often by long-term employees who have known they know the system well.

 

[00:22:13.770] – David Maples

This brings us to the No B.S. segment part of the podcast. So, because this is not a matter of if, it’s a matter of when this will happen to your business, this is something you need to address. And based on the stats that we’ve heard here, 30% of small businesses, they won’t be able to sustain the loss. This sounds like it’s a pretty high-level loss. So, from a No B.S. standpoint, if you don’t take action on this, if you don’t put a plan in place, if you don’t do that, then you are willfully being ignorant of something that will affect your business and it could destroy your company. It’s not something you’re going to plan for. You could build the best company on the planet and go out of business here because you simply failed to plan and address something that will happen to you. It’s an inevitability, unfortunately, and you have to do that. So, if you protect yourself from hurricanes or natural disasters, if you buy a backup generator for your company, if you pay your taxes, you should have a plan in place to address that elephant in room, this idea of embezzlement.

 

[00:23:18.490] – David Maples

And so that’s what I think from a no B.S. standpoint. What are your thoughts on that, Debra?

 

[00:23:23.570] – Debra Dalgo

Well, I like to use health as an analogy when we’re talking about this because we go through our lives at a busy pace, right? And we very often don’t take the time to eat healthy, eat better, exercise, and then one day, usually when we have a few years on us, we are shocked by a deadly disease diagnosis. And I think that embezzlement is very similar or it’s just something that’s very easy to ignore and keep going on and keep going on and keep going on. And then all of a sudden, it’s just, why do we not have any money? We should have money. And that’s when the hammer falls, and that’s when it’s just too late. It’s too late to go back.

 

[00:24:16.130] – David Maples

I want to take a minute and let you talk about what you’ve created. So, you’ve got a company called iworksmartmedia.com, and you created this Embezzlement University. It’s not teaching people how to steal, it’s teaching companies on how to prevent this. Do you want to take a second and tell us about what you built?

 

[00:24:35.800] – Debra Dalgo

Sure! So, there are two courses. There’s one course that’s titled Embezzlement Prevention 101. It’s a 25-minute course for business owners, and this is how to put a plan in place. And we just give you five simple actionable tools that you can put in place today. I know we talked about small businesses don’t have these things that large corporations have at their disposal, like accounting departments and audits and those things. But there are some very simple things that you can start doing that are strong deterrents. Very, very minor things that people can be doing that are not very time consuming. So, there’s that video for the business owner. I’m very passionate about educating the trusted employees. So, that’s a more lengthy course, and they generally have more time. So it’s about 90 minutes. It’s ten sections which are listed on our website. So, you could read through those. That is for the trusted employee to go through those, and it will take them through the beginning and the end process of embezzlement. How it begins and how it ends, and it’s not pretty. So, a lot of times, like I said, embezzlers will rationalize, I’ll pay it back. But they haven’t taken the time to stop and think through the nature of greed or things getting out of control.

 

[00:26:04.550] – Debra Dalgo

And I’m going to be a felon when I’m caught. They don’t think through all those things. So, this course will help them see this whole process play out. And so we have used a couple of examples of real-life cases and what happened in those situations. It’s not a how to manual by any stretch of the imagination. I’ve spent a lot of time thinking about what to say and what not to say. I feel like if people want to embezzle, they don’t need anybody telling them how to do it. They see it every day. You can trust me. They see it every day. They don’t need anyone telling them how they can do it. They’ve already seen it. They’ve already thought through that more than likely. They see the holes in the system every day. It’s just not going to be a topic of conversation. So, there’s that course, and then we have a PDF, because I realize that this is a difficult conversation to have. Hey, I have this course I want you to take, so I realize that’s a difficult conversation. So, I’ve written a sample dialogue for employers to have with their trusted employee to get them to take this course.

 

[00:27:14.810] – Debra Dalgo

And then I also have a document that lists out the common embezzlement schemes, so that hopefully will be as business owners, read through that list of common schemes that embezzlers use that they are thinking through how this operates in my particular business and how they can close that window of opportunity. So, there’s a lot there. There’s a lot there in what we call Embezzlement U.

 

[00:27:41.970] – David Maples

So, for those of you listeners going out there, they can go online to iworksmartmedia.com and sign up and do all that there, correct?

 

[00:27:49.800] – Debra Dalgo

That’s correct.

 

[00:27:51.590] – David Maples

For any of you guys listening out there, there are holes in your boat. They are currently leaky. You need to plug the holes because you’re providing opportunity, and this is something you should just avoid at all costs. I didn’t ask, and I know that you had an idea of some of the things we do ask on the podcast today. What’s the big reason about why you started this? Why did you do this, Debra? I mean, making money is one thing, but why did you decide this was such a burning passion for you?

 

[00:28:16.990] – Debra Dalgo

Yeah, I’m really passionate about helping the trusted employee. I sat in that chair. I still sit in that chair, and thank goodness I’ve never been in a position to where I let my mind go down that road. I’ve never been financially strapped to where I didn’t have any other alternatives. But there are a lot of people out there who sit in that seat, have the temptation every day, and are financially strapped for whatever reason. So, I am passionate about helping not only the trusted employee, but the business owner as well. So, that’s my goal in this course, is it’s more about, for me, about helping people and just opening people’s eyes to do something about this. It’s been a problem for a long time. Embezzlement has been around for a very long time. I watch these cases every week. I spend my Friday mornings reading up on current cases. I usually spend a couple of hours on Friday mornings. And so it doesn’t appear to be lessening at all. So, it’s my hope, it’s our goal that we could help reduce the number of embezzlement cases for sure.

 

[00:29:39.450] – David Maples

So, if there’s three takeaways, they’ve been listening to us for a half hour now. What are the three things you’d like business owners to know after listening to us today?

 

[00:29:50.240] – Debra Dalgo

Yeah, so, I would say, number one, put a plan in place today. I wouldn’t go another day just ignoring this issue and having too much trust place, being too comfortable with one person. Because this happens. Like I said, I see it every week. It happens to the unsuspecting by the unsuspected, and it happens more often than people realize. Number two, you know, educate your trusted employee. I’d say not only for your protection, for your business’s protection, but for them as well. So, definitely, get them some kind of protection. I titled one part of Integrity Ed, Never Say Never, because if we are completely honest, we are all capable of embezzlement, given the right set of circumstances. And then last, I would say, I’ve said this already and I’ll say it again, that if you do nothing else to prevent embezzlement, it’s just simply to let your people know that you’re watching. What surprises me most as I read these cases every week, what surprises me more than anything is that the cases in small businesses, these embezzlers use not one, but more than one method to steal. And it’s usually the same two over and over again, surprisingly.

 

[00:31:11.490] – Debra Dalgo

And what amazes me most is that they’re pretty obvious methods, pretty obvious. And it lets me know that they felt very comfortable stealing, very comfortable, and they didn’t feel like they were going to get caught. And so I would say for sure, let your people know that you’re watching them, that it’s simple, that people will not steal if they think they’re going to get caught. And it’s that simple. If they think they’re going to get caught, they’re not going to do it.

 

[00:31:49.350] – David Maples

See, it’s funny you said that. It’s something you said. It’s very obvious, very low- It’s not Oceans Eleven with somebody breaking into the casino and blacking out a city with an electromagnetic pulse or something. Literally, it’s like, oh, no, it’s just the door was open, and I took them out the back door, kind of thing.

 

[00:32:11.690] – Debra Dalgo

Yeah.

 

[00:32:13.290] – David Maples

Wow.

 

[00:32:16.010] – Debra Dalgo

Using company credit cards is a big one. And you think, gosh, somebody should just be running their eyes over the Visa bill every month.

 

[00:32:24.270] – David Maples

Yeah. No, I mean, you’re right. Okay, I’ve got stuff for myself to do. So, Debra, thank you so much for coming on today. I really appreciate it. This is a great conversation. So, for those of you guys out there listening, take a look at iworksmartmedia.com, and I highly recommend it. Thank you so much for coming on the show today, Debra. I really appreciate it.

 

[00:32:48.310] – Debra Dalgo

Thank you. Thanks for having me.

 

[00:32:50.150] – David Maples

I’m glad to do it.