This interview showed me new ways I have left the open for problems with people. It’s a game changer!
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Hugh: Hey, it’s Hugh Ballou. My guest today is Justin Recla. Justin and I have been friends for a number of years. He looks like Mr. Clean because he is the guy that finds the dirt. I have known him to do background checks. We worked together in a place of business growth conference called CEOSpace. Justin checks us all out. Luckily, I passed. There is some relevance. I want to bring the relevance to this module today for really good leadership decisions, so stick with us. This will save you money, and this will save you a lot of anguish, and this will save you a lot of conflict within your organization.
Justin, welcome today. We are talking to social entrepreneurs who are making a difference in the world. Tell them in a nutshell why you are qualified to do this work we are talking about today.
Justin: Thanks for having me on, Hugh. To give a quick background of where we come from, my wife Tonya and I were both counter-intelligence agents with the U.S. government. We have over 20+ years combined experience conducting espionage investigations, running intelligence sources. When it comes to looking into people, that is what we have done in our military career. We used to train agents on the exact same skillset. Now we provide those services to protect business owners to make sure they are getting involved with the right people and not the wrong people.
Hugh: That is priceless. We are solving a problem that people don’t know they are going to have. It’s really hard for people to understand why they need to pay for this. This costs money; it’s a service that you provide. You provide it for churches and charities and businesses alike. In my 30+ years of working with organizations, I do find there are some common problems people have. We are very trusting people. We are a very trusting culture. I like this guy, Justin, and I want to put him on my board because I like him. What is wrong with that?
Justin: Especially in the social entrepreneur sector, nonprofits and whatnot, what we have found in our experience is that those industries are huge targets for frauds and scams. Because it is nonprofit does not mean it is not for money. The fraudsters and scamsters know this. We see a lot of nonprofits being targeted because of the amount of money they are raising. Those frauds and scams come in a variety of forms of service providers who say they can do something but either have no intention of doing it, but more often than not, it’s typically aptitude.
We see so many business owners, whether it be a nonprofit or a regular business, failing and putting themselves at risk because they are not doing their due diligence. Like you just said, we refer to that as the “I love you, you love me” conversation. They are making an emotional decision that affects their business, and ultimately, that puts their business at risk. In order to mitigate your risk, you have to make your decisions from two places: the intuitive due diligence—do I like them, and are we going to get along?—and the mechanical due diligence of are they who they say they are, and can they do what they say they can do? When you make a decision from both of those places, you actually mitigate your risk. We tell people all the time that a little bit of due diligence on the front end is always less expensive than cleanup on the back end.
Hugh: I have been guilty over the years. I have made a lot of mistakes. I have done a lot of bad hires or, shall we say, inappropriate hires. When I raised money for a small camera store in St. Pete in Florida because I was growing it massively, I brought in a group of investors. They met my leadership team. Here is my financial person. He went and studied at one of the major business schools, so it was on his resume. They started asking him about his degree. I just looked at it on the resume and said he went to this school. It came out of that interview in a very embarrassing way that he didn’t finish the degree. We have seen high-level leaders being asked to resign because they faked it on their resume. Part of it is checking the credentials.
I live in a town of about 30,000 people. Several years ago, there were three charities that got hit for several hundred thousand dollars each by somebody siphoning off the money. These people were respectable members of the community. We have our Olympics where there are some things going on. We know the Catholic Church has got a black eye with sexual impropriety. There are a lot of reasons to do background checks. What are some of the numbers out there? You said there is an alarming amount of money taken from charities. Do you have any statistics on that?
Justin: In 2015, the International Fraud Examiners Organization actually put out some numbers that small businesses lost three billion dollars to frauds and scams.
Hugh: Oh my.
Justin: If your organization has less than 100 people in it, you are 28% more likely to fall victim to a fraud or scam because typically, organizations that have less than 100 people don’t have the systems and processes in place to catch those frauds and scams. The large corporations like Microsoft, IBM, and Apple all have done this for forever. They have teams of people such as myself that have counter-intelligence experience that protect the entire business and organization from what we call the human risk factor. Unfortunately, that is never really translated down to the non-profit sector or small businesses because it is costly. Somebody in my position would make $300,000 a year, and that is just for one position. Most small businesses can’t afford to pay somebody that salary, so they have been left to do their own due diligence.
Most small business owners and nonprofit people that we talk to tell people that they do their due diligence, but really, they secretly confess to us that they don’t really even know what that means. We see more financial fraud than anything else, followed by ineptitude. Those are the two biggest risks.
A lot of people don’t take into consideration the ineptitude piece because the person might be great. They may have some experience doing what it is they say they can do. What happens is they then overpromise. They can’t deliver. What we find often is that you are going to hire a service provider or bring someone into your organization to do A, B, C, D, E, F, and G, but you find out when you do your due diligence that they only have experience doing A and B. Most people get involved with somebody based off of what they can do, that whole package, and they learn the hard way that they were unable to deliver because four or five months go by, and now you are out time and money, and had you done some due diligence on the front end, you would have learned they couldn’t have done what they said they could do.
Hugh: That is a big one. We are very trusting, and we are naïve in that trusting. Back to the purpose of this podcast series, it’s about equipping leaders to be better leaders. This is a repeated mistake, and people regret it. This is a learning opportunity for some, but it can cost people $350,000 besides the charities. That is the aggregate for these three charities, which is almost a million dollars, in a small town. That was very visible. I went to my healthcare provider for an appointment, and there were different people, so I asked him when I got in, “Where are the people?” I said, “We had to change staff because we found a million dollars missing.”
Justin: The crazy thing is we don’t vet our friends. We don’t vet the people we have known for ten, fifteen, twenty years because we have known them. Or we think we have known them. It’s not like when you first meet somebody and are establishing a friendship, and you are getting together to have a drink, it’s not like you’re going, “Hey, I need you to fill out some questions. Then we can hang out and do something together.” If people build a reputation up as being a nice guy, especially in a small town, then that is the reputation that they earn. If you dig beneath the surface, you can see all the business dealings, all the lack of integrity. I guarantee that if somebody had looked into the person skimming off the top of those three charities, they would have found a pattern behavior that this was not the first time they had done such.
Hugh: They didn’t have safeguards installed inside, which is part of the work I do. Last week, a local theater company did The Music Man. That story is about a man who comes into town milking everybody for money, they caught him, and then he had to do the band. That was a good result, but it doesn’t always turn out like that.
When I worked with leaders on onboarding new people, which is a big blind spot, in small businesses and charities we do the search process, and we put together a search team or committee. A committee is where good ideas go to die usually. We put together a team of well-meaning people who have no idea what they are doing. Over the years, I have put together this process, which starts with competency, the role and responsibility, do they fit this culture—to know this, we have defined our core values and guiding principles, so how do they fit the culture because the wrong culture fit can be a disaster—and then have we defined the expectations, what we want them to accomplish? In that process, we see their resume, which is their competency. There is the background check to make sure that is accurate. In between, when we check the competency and define the roles and responsibilities of that first conversation with them, then we check the references, and before we bring them on board, there are multiple places where someone would need a service like yours. What do people learn? What do you find that people learn in this process that they didn’t know once you take them through that?
Justin: What we typically find is they think they know something about the person they are bringing on board, but when we walk them through this process, they realize they don’t know a whole lot about it. It’s a very simple process that a lot of business owners can do and nonprofits can do on their own. It’s a three-step process.
It’s critical thinking. What you know about this person, how do you know it, and what do you need to know before you actually get involved with them? Oftentimes a person will only know something about another person because of a conversation they had with them, or they looked at their resume and their resume matches their LinkedIn profile that matches their website. What do you really know about that? I have built plenty of my own websites and created my own LinkedIn profiles, so of course that information is going to be congruent. So honing down on how you know it, and the bigger piece is what you need to know about that person or service provider before you engage them.
The second step is asking the hard questions. Once you have identified those gaps of information, ask them how to verify this information. Ask them how to do your due diligence on them.
The third step is actually verifying the information. A lot of people stop at that portion right there, and they don’t actually verify the information because they have an answer that sounded good and/or felt good, so they feel they don’t need to verify it. Or they confirm it via the person’s website, thinking it checks out. As people go through this process, they learn quickly that they didn’t know a whole lot about this person. Everything they knew about them only came through one source.
Hugh: I heard some reports that some states don’t allow the interviewer that is hiring the person to talk about their incarceration time.
Justin: Employment screenings… I am happy to announce that mid-next-week, we are launching an employment screening service, so we are getting some things ready on the back-end, but I am happy to finally announce that. The employment screening sector, one of the reasons we have avoided it for so long, is it really is designed to protect the employee and not the business owner. Depending on what state you are in, there are certain questions you can ask and certain questions you can’t ask. However, that does not mean you can’t find the information you need to be able to make a decision other ways. That is the reason why we are putting together the system that we have is because our system will actually go as in-depth as a federal background investigation for people who are going through this process to help identify what an employer needs to know about a person moving forward.
Hugh: Next week will have happened by the time this podcast goes live. What is the URL for that site?
Justin: They can go to clearbusinessdirectory.com to learn more information about our vetting services as well as the employment screening.
Hugh: You talked about your background in intelligence, and I see all these scary TV shows where people are pretty mean. You have this deep voice, and you can scare people. Tell people that this is not a scary process. Is it a scary process?
Justin: This is by far one of the easiest processes out there. Due diligence is super easy. One of the reasons why people don’t do it is because of that emotional factor. They are afraid of what people might think about them. They don’t want people to think they don’t trust them. It’s not about that. This is your business. This is your nonprofit. This is your baby. Why would you leave that to anybody? It’s not personal. It is literally business. It is smart business, and it is smart leadership. You owe it to yourself, you owe it to your board of directors, and to your investors to make sure you are making educated decisions. When you put it at that level of business and this is our process, it doesn’t make it personal because this is now across the board. Whomever comes to your organization, this is the process that you have. It’s not personal. It’s just part of your system.
Hugh: It is personal if it gets out of whack. I encourage people to write this into their bylaws. You can say this is required in the bylaws of our organization. It is a good business practice. As you had noted, leaders make dumb decisions based on I want people to like me rather than the principle-based decision that it is the right thing to do. That is the driver, and that is why I wanted to have you in this series. I find leaders are constantly backing off to make decisions. They don’t want to correct behaviors because they don’t want to hurt somebody’s feelings. Then we pay the price. Making a good leadership decision is doing the right thing for the right reason. I think you have given us a number of reasons. This isn’t pushing you as a service. I know you are very competent in what you do; this is somebody like you that they pay money to to do a proper job. You want to get a friend to do it for free? Well, it’s going to be worth what you pay for.
I know that you are very skilled at this because I have known you five years. You have exposed some things about people that others didn’t know that helped them not go down that pathway. You have found a little thing about me when you did a background check on me. It was like a $10 bill somewhere. You gotta clear that up. It was filing something late on a payroll tax report, which I thought I had filed on time. But you found it. By the time you found it, it was fixed. You proved to me that you can find miniscule things. Is there a drain on the leaders’ time during this process? What is it like time-wise for them?
Justin: The process is super simple. Regardless of if they outsource it to a third party vendor or have someone on their team do it for them, the most time-consuming portion of it is getting the system set up. That takes maybe half a day to set up. But once that system is in place, it’s a matter of sending out the right questions and having somebody verify that. The leader shouldn’t have to do that. The CEO should be holding that vision. But the process should be part of that vision and having somebody on their team do that for them is fairly painless, especially if it is done through what we call the transparency process to where the people who are going through it are aware of it.
Hugh: Transparency process. That is a really good term. You and I have synergized on a number of things that we didn’t realize. Encouraging the leader to be transparent about things, that is a very strong leadership skill.
I am looking for the blog post. I follow Seth Godin who writes very short posts, and they are really spot-on. He talks about functional and dysfunctional organizations. We have people who are a pain in the butt but are good at what they do. They don’t fit the culture, so they create this dysfunctional culture. Function is never an excuse for a dysfunctional organization. We get the organization that we compromise for. We do make a compromise, which then compromises the organization and compromises our income. Compromise is a lose-lose. It’s where everybody gives up something. He is talking about people who are already in an organization, they don’t fit the culture, and they are a wild card. The leader makes an excuse for needing that person because it’s too expensive to replace them. Replacing them is costly, and keeping them is costly. I see leaders make this mistake over and over, and that is why I wanted to have you on to share some of your wisdom. Before we wind up here, is there another piece of information we have not covered that you think is important for leaders to know?
Justin: The biggest thing in business nowadays is there are 34 million small businesses in the United States. I think I saw a stat that there are 70,000 new small businesses that are added every month to that number. The number of businesses out there in the United States alone, the numbers of frauds and scams that exist are unreal. You see it in the news. People are tired of getting lied to. People are tired of getting ripped off, especially business owners. In business, trust is the new currency. Transparency expedites that trust.
Hugh: That is a good parting thought. I always end with a note to the weary and frantic. You are weary and frantic because you didn’t check out people and how they are eating at the core of your organization. Prevent it by having somebody do that background check.
Justin Recla, thank you for sharing your wisdom with us today.
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