A High Profile Case of Embezzlement
There are common-sense ways to prevent employees from stealing. A lot of businesses don’t follow them.
Here are today’s highlights:
The high interest rates are keeping many business owners from enjoying the economy.
To recruit and retain employees, more businesses are offering retirement plans.
The bubble is bursting for indoor-farming startups—but not those that prioritized profits.
There’s a new co-working model that looks a lot like Airbnb.
How did a mid-level employee of the Jacksonville Jaguars manage to steal $22 million? “The Jaguars switched to a virtual credit card system after Patel had been with the team for about a year. VCCs are considered more secure than having employees carry around physical cards, and they keep the card information private when making online transactions. However, it takes time for employees to transition to the new system, and the person introducing the system is relied upon to answer questions. He or she becomes the go-to, the trusted expert. [Amit] Patel was that trusted person in Jacksonville. When he first started managing the VCC program, there was an employee from accounting who checked Patel’s submitted sheets, but then that employee left, and that layer of security also went away. ‘The number one rule you learn in accounting is you need to have dual controls for a reason,’ said one source.”
“The federal charging documents state that as the sole administrator of the VCC program, Patel had the power to create user accounts, approve new VCCs, request changes to the available credit for the VCCs, and classify all VCC transactions in the Jaguars’ general ledger. Each month, he created an ‘integration file’ that listed each VCC transaction with cost coding information.”
“But instead of accurately reporting the VCC transactions, Patel is alleged to have created fraudulent entries using a variety of methods to ensure that the total dollar amount of VCC expenses matched the balances paid by the Jaguars.”
“Charging documents state that he ‘identified legitimate recurring VCC transactions, such as catering, airfare and hotel charges, and then duplicated those transactions; he inflated the amounts of recurring VCC transactions; he entered completely fictitious transactions that might sound plausible, but that never actually occurred; and he moved legitimate VCC charges from upcoming months into the month of the integration file that was immediately due to the accounting department.’”
“‘If you’re running a tight business, this would be impossible to pull off more than once,’ said a former chief operating officer for an AFC team. ‘For (four) years, somebody was asleep at the switch.’” READ MORE
The NFIB’s November survey finds smallbiz optimism at a six-month low with more businesses cutting jobs than adding them: “A pet equipment vendor in California. An outdoor clothing outlet in Virginia. A garden center in New Jersey. An auctioneer in Alaska. All say their customers are still spending and it’s too soon to talk recession. But they’re seeing more reasons for caution as high borrowing costs take a toll. If the economy falters, it will be the country’s 33 million small businesses that send the warning flares. Government data show those companies account for two of every three jobs added in the past 25 years.”
“Drew Tiner, owner of Calgo Gardens, a nursery and landscaping center in Freehold, New Jersey, says customers are increasingly shopping around in search of a better deal, ‘getting more cautious about how they spend their money.’”
“And staffers who decamped for opportunities elsewhere after the pandemic have been knocking on his door—which he takes as a sign of an impending slowdown. ‘A lot of those guys broke off to try to do their own thing,’ Tiner says. ‘They’re coming back to look for something more steady.’”
“April Peterson, co-owner of River Rock Outfitter, an outdoor gear shop in Fredericksburg, Virginia, says consumers’ confidence is waning despite continued buying. Revenue remains above 2019 levels, but sales are slowing for the first time since the pandemic. ‘Our customers seem worn-out by the instability—war coverage, government chaos, inflation—and they are showing their frustration with reduced spending,’ she says.” READ MORE
More small businesses are offering retirement plans: “In July 2022, just 25 percent of small and mid-sized businesses in Colorado with at least five employees had a 401(k) plan, but that rose to 38 percent after the state passed legislation requiring firms to offer a retirement plan. Meanwhile, in states bordering Colorado, the share of businesses offering a retirement option stayed the same, according to new data from payroll and benefits provider Gusto. Those options have led to higher employee participation rates, with workers making less than $25,000 a year nearly doubling their participation, from about a 10 percent share to a 19 percent share between July 2022 and July 2023. The smallest businesses have also grown their participation, with 19 percent of businesses with five to nine employees offering a plan in July 2022. That share grew to 28 percent a year later.”
“The number of state mandates has grown, too, with California, Illinois, Virginia, New Jersey, Maryland and New York among the states passing some kind of requirement for auto-enrollment in an IRA or 401(k) plan, according to Steve Abbott, head of public policy and government affairs at Gusto.”
“Gusto Economist Luke Pardue said the cost of retirement plans has gone down even as their benefits have gone up, and employees are less likely to leave a company that offers a retirement plan. ‘This is a secret weapon for businesses to raise retention rates because employees value these benefits to such a large degree and they are relatively inexpensive,’ Pardue said. Previous Gusto research showed turnover can be reduced by up to 40 percent with the adoption of a retirement plan.” READ MORE
Here’s how one business retains employees for an average of six years: “If the last three years have taught employers anything, it's that retention can make or break a company. But have employers learned how to keep their employees for the long haul? Melanie Dulbecco, the CEO of Torani for over 30 years, believes the syrup and sauce company has cracked the code — and with an average tenure of 6.3 years, they have proof their approach works. ‘What makes it even more amazing is half of our folks are new to the company because we've doubled in size in the last three years,’ says Dulbecco. ‘Which means people's longevity here may be even longer than 6.3 years. We have really grown and changed together, and that makes a huge difference.’”
“According to LendingTree, the median U.S. job tenure has dropped by 11 percent in the last decade, now sitting at 4.1 years. Beating it by over two years, Torani outpaces the national average by over 53 percent, and Dulbecco is determined to see that number grow. Today, the company has just over 300 workers, and they plan to keep them: Torani has never had a layoff in its nearly century-long history.”
“At the beginning of each year, Torani employees connect with managers to discuss their goals, and then have a mid-year check-in, before assessing how much they've grown by the end of the year. Dulbecco believes this system is a huge part of why people stay — they feel in control of their careers.
“Torani combines their contribution management style with what Dulbecco coins as ‘career mixology,’ empowering employees to switch up their roles and careers within the company. For instance, an employee working in demand planning wanted to learn more about brand management, so she applied for an open position and successfully moved into the new role, explains Dulbecco.” READ MORE
The movement to shut down diversity efforts is targeting law firms: “The conservative campaign to dismantle corporate diversity initiatives has hit pay dirt by focusing on a surprising target: law firms. Since August, the conservative American Alliance for Equal Rights has sued or sent threatening letters to at least seven law firms, demanding that they shutter diversity fellowship programs, and claiming that they exclude qualified White and Asian students based on race. Meanwhile, five Republican state attorneys general have fired off letters to 100 top law firms, threatening legal action and suggesting that ‘racial discrimination in employment and contracting may be commonplace’ in the legal industry.”
“Kenji Yoshino, a law professor and director of the Meltzer Center for Diversity, Inclusion and Belonging at New York University, said targeting law firms is effective because it can serve as a warning to other industries.”
“Alternatives include moving away from explicit consideration of protected characteristics — such as race, gender and sexual orientation — to the ‘character of each individual applicant’ via statements or essays, NYU’s Yoshino said. He said some of the most ‘aggressive’ programs — including those that tie executive compensation to diversity goals — are ‘going to be in trouble.’”
“They could be replaced by programs aimed at removing unconscious bias from hiring, as well as building a ‘firewall’ between company officials who recruit job candidates and those who make hiring decisions, Yoshino said. ‘DEI will look very, very different 10 years from now,’ Yoshino said. ‘But it will still exist — if anything, in a more robust form than it has today.’” READ MORE
The app-store economy is under legal threat: “Monday’s court ruling that Google has operated an illegal app-store monopoly is the latest in a mounting series of threats to the $500 billion-a-year app-store economy, which has evolved into a profit machine for Apple and Google that helped define the smartphone era. A jury unanimously sided with Epic Games, saying that Google had harmed the videogame maker by maintaining an illegal monopoly. Google said it plans to appeal the verdict and stands by its business model.”
“Beginning in March, Apple is expected to allow software downloads outside the confines of its App Store for the first time due to a new European Union law. In South Korea, the two companies were forced in 2021 to open their stores to alternative payment systems.”
“For Google, its Android app store was one of its most enduring profit centers outside of search. That is now under threat. Epic didn’t ask to be awarded monetary damages or special treatment from Google, whose parent company is Alphabet. Instead, the maker of the popular video game Fortnite wants Google to be forced to make its Android ecosystem more open and competitive. It is unclear what that will look like.” READ MORE
For many indoor-farming startups the hype bubble has burst, but in Massachusetts, Little Leaf Farms—which decided not to take venture capital—is thriving: “Paul Sellew has been watching the situation with a mix of pride and hard-earned realism. Little Leaf Farms in Devens, which he co-founded and serves as chief executive, has been flourishing even as the bubble surrounding such startups appears to have burst. ‘There was a little bit too much hype, and it was not grounded in the kinds of approaches that we’re doing here,’ he said. As of the end of 2022, investors had placed more than $2 billion in such companies across 158 deals, according to data by Pitchbook. But Little Leaf executives decided to forgo venture capital, worried that the rapid expansion often expected in the startup scene may not be sustainable for their vision.”
“Instead, Little Leaf took a more old-fashioned approach to growth, carefully nurturing its business into a profitable enterprise before looking to expand with less risky capital such as government and commercial bank loans.”
“Sellew has long advocated for indoor farming, growing fruits and vegetables inside structures with carefully controlled environments. In Little Leaf’s case, the structure is a 10-acre automated greenhouse in which lettuce is planted, grown, and picked without human hands ever touching the food.”
“Sellew suggested that his field may not be a great fit for venture capital because of the time and money needed to create and carefully maintain an artificial pocket of Mother Nature within four walls. ‘This whole notion of supporting these money pit companies that continue to burn cash, that’s not us,’ Sellew said, referring to Little Leaf.” READ MORE
New co-working models that look a lot like Airbnb are thriving: “Before the pandemic, Rebecca Armstrong’s Portland, Oregon, advertising agency occupied 9,000 square feet of office space in the city’s central downtown area. Armstrong and Mark Ray, who both co-founded North Agency 17 years ago, let the space go when the pandemic struck and chose never to lease office space again. ‘Technology afforded us the ability to work from anywhere,’ Armstrong said, adding that the savings from not having a long-term office lease are being used to ‘invest in the future of our business.’ North Agency's roughly 15 employees work remotely and meet at least every other week in a residential house offered as coworking space through Portland startup Radious.”
“An Atlanta-based startup named Switchyards has another spin on coworking – a neighborhood work club. ... Instead of posh office buildings, Switchyards’ locations include an early 20th-century school auditorium in an Atlanta neighborhood. The startup's first spot outside Atlanta is a century-old former church in Nashville, Tennessee.”
“Washington, D.C.-based WorkChew, a four-year-old startup, finds space for remote workers in hotels and restaurants. Codi, a San Francisco startup, built a marketplace to match companies with short-term private space in traditional office buildings. It has investment from Andreessen Horowitz, which backed WeWork founder and former CEO Adam Neumann’s latest apartment venture Flow.” READ MORE
George A. Cohon, who introduced the Big Mac — or the Bolshoi Mak — to Russia in 1990: “A Fuller Brush salesman in college with a flair for merchandising, Mr. Cohon (pronounced CO-hen) abandoned his law practice when Ray Kroc, the McDonald’s founder, offered him the chain’s franchise for eastern Canada. Mr. Cohon borrowed $70,000 to buy the rights and opened his first restaurant in London, Ontario, in 1968. In 1971, he traded the franchise for McDonald’s stock and in 1992 became senior chairman of McDonald’s Restaurants of Canada, which included some 1,500 eateries, and of McDonald’s in Russia.”
“Though waiting on lines was part of daily life in Soviet Russia, opening day in Moscow — Jan. 31, 1990 — exceeded all expectations when an estimated 10,000 people queued up in Pushkin Square for Happy Meals and double cheeseburgers. By the end of the day around 30,000 people had sampled the menu at the mammoth 700-seat restaurant, emblazoned with its trademark golden arches.”
“In his memoir ‘To Russia With Fries,’ Mr. Cohon said that a chance encounter with a Russian delegation at the 1976 Montreal Olympics had prompted him to pursue 14 years of exasperating negotiations — or what he called ‘hamburger diplomacy’ — to overcome the hurdles of Communist bureaucracy. He was nearly strangled by the red tape. The Moscow municipality eventually wound up owning 51 percent of the Pushkin Square restaurant.”
“In 2022, McDonald’s announced that it would begin closing its 850 Russian restaurants and selling them off in response to Russia’s invasion of Ukraine — the country from which Mr. Cohon’s father’s family had fled in the early 20th century in the wake of a pogrom.” READ MORE
THE 21 HATS PODCAST
What Are Your Goals for 2024? This week, Shawn Busse, Liz Picarazzi, and Jaci Russo discuss what they learned in 2023 and what they expect from 2024. After a tough year, Shawn is optimistic that his clients, having survived the turbulence of the past few years, are ready to spend money and try something different. Liz explains why she’s been willing to discount her products as much as 40 percent on Cyber Mondays and tells us about some new products she has in the works. Early in the year, Jaci, thinking she was going to have to staff up to handle two big new clients, dove into remodeling her offices — but those big clients have yet to sign on. “I might have jumped the gun a little bit,” says Jaci.
Plus: Liz talks about her Midwestern mom, who can’t understand how Liz can charge so much for her trash enclosures. And Shawn raises the issue of how much money business owners should spend on marketing.
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Thanks for reading, everyone. — Loren