Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful modern solutions to help enhance your company’s growth and bottom line. I’m your host, Dave Cain.
Businesses need to be extra vigilant these days from fraud and sexual harassment issues to compliance and safety concerns. There are so many reasons for a business owner to lay awake at night. Today’s guest is Ray Dunkle, president and founder of Red Flag Reporting, a hotline provider based out of the Akron-Canton area, also known as Cleveland Browns territory. Hotlines are reportedly the most effective way to deter fraud and other types of unethical behavior in the workplace. And with the #MeToo Movement continuing to gain momentum, I would imagine something like this can be a really great tool to take a proactive stance within your business.
Let’s get started. Glad to have you on unsuitable, Ray.
Ray Dunkle: Thank you. Happy to be here.
Dave: Thanks for making the trip down to Columbus, Ohio.
Ray: It’s a pleasure.
Dave: So, I want to just a note to our listeners, again, thanks for listening today. This is going to be a pretty interesting, pretty different presentation today. But jump on the internet and Google Red Flag Reporting and you’ll see a lot of information about your company and I think that’s a good start to our listeners. They can get a great feel for your company and your people and the services within that. And we’ll dig into that in a little deeper.
You know, also full disclosure, Rea & Associates has been a longterm client of Red Flag Reporting.
Ray: And an affiliate.
Dave: And an affiliate.
Ray: So able to serve your clients directly with our offering.
Dave: We’re going to talk about that. We’ve got some great stories to tell now. Maybe not the best stories from a business owner’s perspective, but some really objective reality checks. Also, I want to commend you, you’re an entrepreneur. You started Red Flag Reporting. You worked for many years, very successful CPA profession with a firm and stepped away to build and start Red Flag Reporting.
Ray: It’s been a joy, yeah. I spent 25 years in public accounting. I ended as a partner and we grew this Red Flag serving our clients in 50 countries. It’s been a joy to watch it grow.
Dave: Lately in the news, especially the Michigan State sexual harassment issues that develop around that program and the physician, you know, if Red Flag Reporting may have been a mechanism that folks could have used to bring that to the attention to the authorities.
Ray: Yeah, that’s absolutely the case. And they actually, a huge source of our growth right now is the whole #metoo movement. So whether it’s issue up in Michigan or Harvey Weinstein or Bill Cosby or what have you, people are finally paying attention. The surprising thing though is that it’s that one thing that drives growth right now. It’s as if the world of fraud has gone away. It’s as if the world of safety issues have gone away. It’s as if the world of compliance issues have gone away. Those things have not gone away. They’re just not in the news right now. I think that’s what always is interesting to me is that there are so much more to this. There’s so many things that we can help with and I just always hope that people don’t lose sight of the other problems that are taking place in the business world right now.
Dave: Sure. And it’s somewhat cyclical. It’ll go back to fraud and then back to sexual harassment. There are just many things that are happening in the business environment that are exposing business owners to a tremendous amount of risk.
Ray: Absolutely. Fraud is what started this. I was a forensic accountant and we started off as a fraud hotline. It was through our clients themselves, not our own genius that caused us to growth to where we are. So yeah, we have a client that says, well Ray, what about safety issues? Could you guys handle that? Sure, we can handle that. We added on safety issues. But again, being humble, I’ll say we stop there, and then I have another client say, well Ray, what about HR type issues? And so we added. And that’s how we’ve grown. So, anything unethical or unsafe in the workplace essentially is what we can help people with.
Dave: We’re talking about two main larger issues is one from a business perspective is protect the business reputation and protect your bottom line. The things that you had mentioned, fraud, harassment, safety would impact both of those areas.
Ray: Absolutely.
Dave: Our business owners and our clients that we talk to, we always talk about risk and how to mitigate risk and create value. If we can create value, you worked in the CPA profession, we can eliminate the risk.
Ray: Goodwill is a huge source of the value of your business. I lead forensic and business valuation practice. Goodwill is what drives value. You hammer your goodwill, you hurt your reputation and a lifetime of hard work can go down the drain very quickly. So yeah, being able to protect that reputation is key.
Dave: Let’s dive into this a little bit with a couple of examples and stories. Certainly, the benefits, what are the benefits of a hotline or whistleblower mechanism. What are the benefits?
Ray: The obvious one that comes to mind is the idea of detecting problems. That one’s sort of the obvious. So, we have an issue that’s taken place for whatever reason. An employee is not comfortable coming through an open door. And by the way, all my clients have open door policies and all my non-clients think they have open door policies and they probably do. But that doesn’t mean that the average employee is comfortable walking through that open door. That’s the beauty of the hotline is they can be anonymous but bring an issue to light.
The obvious thing that people think about is the whole detection issue and that’s going to be great. The statistics from the Association of Certified Fraud Examiners, just to take one angle, say, having a hotline is the most cost effective internal control that you can have. Beyond that, you have groups like the Society of Human Resource Management, the American Institute of CPAs all saying that this is a great practice, but we’re all focusing on the idea of detection.
So enough said on that, I think everybody listening to this will get that idea. We find something out sooner than we prevent a problem. Well, here’s the other two big benefits for a service like this. The second one is deterrence. If you look at the coastal report, going back to a financial angle, the coastal report says that the greatest way that you can avoid a dishonesty from a financial sense is having a strong tone at the top. Now, I think it would stand to reason that that’s going to be true in any type of area. So whether it’s harassment or discrimination, strong tone at the top.
Now clients will spend a lot of time and money working towards that. But a service like ours is going to help enhance that deterrence aspect. So, if I know that my organization has a hotline in place, am I less likely to do something that’s not so smart? I do a lot of public speaking on how to avoid being victimized by fraud, for example. One of the things I ask people to do is to put themselves in this situation. Anywhere in life, have you ever had the little devil on your shoulder and the little angel on the shoulder? If we’re all honest, we’d say yes. We’d also say yes at some point or another, I flicked that little angel right off my shoulder. For some of us may be more severe than others.
But the point is when that hotline is in place and you have posters hanging up and you have ongoing messaging about ethical behavior in the workplace, people are going to know that you’re paying attention. They’re also going to know that their coworkers have an opportunity to speak up if something is wrong. So, deterrence is number two.
Number three, that’s big is defense, so affirmative defense. Let’s play out the unfortunate situation where something actually does go wrong. Let’s take it’s discrimination, it’s harassment, it’s whatever. It’s not that the organization condones that behavior and it’s not even a reflection on the management or the ownership of that organization, but let’s say someone really did go off the ranch and do something wrong. If an organization can demonstrate that, hey, this isn’t us that did this, this is an individual, and in fact, we’ve done all the right things to make sure that these things don’t happen. We’ve done training. We have an open door policy. Oh, by the way, we have an independent hotline that if the client’s not comfortable or the employee is not comfortable coming to me directly, they can go to this independent hotline, still communicate with us, but be completely anonymous.
It shows that the client has done all the right things. They’ve made themselves available in multiple channels, so direct or indirect through the hotline, and it will make it far more difficult to lose a lawsuit and far more difficult to be sued.
Dave: Sure, let’s play that out a little bit. Let’s say that there’s an employee that calls the whistleblower, the hotline in regards to a sexual harassment issue that they’re totally uncomfortable going to anyone in the organization. So they will call the hotline, is it anonymous?
Ray: It is. So it’s at their choice. What’s fantastic is they have six different ways they can get ahold of us. But one of the ways is anonymous phone call. And by the way, with Red Flag Reporting, there is no hold time. That’s a big deal because if you-
Dave: Hold time, what is hold time.
Ray: Hold time. So I call and I want to report something and-
Dave: Press one, press two, okay.
Ray: And then you’re on hold for 10 minutes.
Dave: It’s automatic.
Ray: That’s not going to happen with us. And that’s key because, put yourself in the position of an employee that’s finally reached the point where you’re uncomfortable, you do not want to call and be on hold for 10 minutes. You can rationalize-
Dave: It’s immediate.
Ray: Yeah, it’s immediate. So that’s key. So anyway, they have the choice to be anonymous or not. And even if they choose to be anonymous, let’s role play, let’s pretend you’re the employer and I’m the person that’s concerned. You and I can actually communicate with each other directly through the software. You have no idea who I am, but you might have follow up questions about my concern and I can update you. I might have updates for you and I can give them to you. I might be concerned that a policy was violated and you could actually get me the policy and have me look at, direct me right to what to look at. So you could get the policy. All this can take place while you have no idea who I am.
So it’s very powerful, again, for that employee that’s not comfortable coming right to your door, it gives them another avenue. And to go back to that affirmative defense, it takes away the excuse that I had nowhere to go because they do.
Dave: They do.
Ray: Yeah.
Dave: Okay. So the call comes in and there’s a method to get the information to the business owner.
Ray: Correct.
Dave: Do you or someone in your organization, obviously it’s a live conversation.
Ray: Correct.
Dave: What’s the time between that conversation and when you get back to me as the owner with the issue.
Ray: And again, a little bit plug for us but this is a differentiator for us. We’re the only ones that can make this claim. It’s immediate. So, when a report is filed, you will be notified immediately two ways. You’ll get a text alert and an email alert that something has happened.
Dave: 2AM in the morning.
Ray: 2AM in the morning, you are going to have that alert. We’re finished with the call at 2 AM in the morning, at 2:01 you have the alert and the email bringing it to your attention.
So, let’s play that out. Let’s look at a fraud case that’s been going on for 18 months. That’s the typical timeframe for fraud. It’s been going on for 18 months. If you get a report and it takes six hours for you to be notified about that report with a fraud case, that might not be a big deal. Let’s say that you have a piece of heavy equipment that’s malfunctioning that’s putting people’s lives at risk, a six hour delay might be all the difference in the world. So being notified immediately is key. You will be alerted two different ways. We actually have at least two people that we’re alerting, so we have checks and balances in place. If one of those people is actually the source of concern, for example, we have someone else that we can get ahold of.
Dave: Okay. Keep playing this out. Okay, let’s say that I get a report from you at 2:01AM and weeks and months go by and I don’t do anything about that call. What happens next?
Ray: That’s on you. That’s going to be your responsibility. We do not take any responsibility for resolving the issues for you. Now, one of the thing that’s great for Rea’s clients is that if there is a financial issue, you folks will jump in and help them understand it right away and help them get to the bottom of it. So, that is a distinct advantage for your clients on that affiliate that use our service through the affiliation. But beyond that, you have to think about this way. It’s going to be no different than if someone walked into your office and said I’m being discriminated against or someone mailed you an anonymous letter. You’re going to have to take action but that’s going to fall onto your report.
Dave: That’s all on management, that’s on the board, etc.
Ray: Correct, correct. That will lead to the question that some people listening might have is like who do we tell? We tell whoever our client tells us to tell and only those individuals.
Dave: So it could be the CEO, could be the board, could be the company attorney, could be anybody that company does select.
Ray: And we recommend diverse area. So different departments perhaps, you want to avoid collusion. A lot of our not for profit clients will have a board member be notified as such.
Dave: So there’s a check and balance that, again, let’s use the #metoo movement that if something were to happen, they’re going to be several people in the organization that find out about it and that’s the check and balance that there will be something done.
Ray: That’s correct. And even if that accusation isn’t true, that protects the executive. So let’s say there’s an accusation against the president. The president is someone who gets the report but it’s not true. Let’s just play out that scenario. The fact that it will go to another person is going to protect the president so the president cannot be accused of having covered it up and buried it.
Dave: I was going to ask you, let’s say a year and I worked together. I just got my annual review and I didn’t give very nice raise and I’m mad as heck and I’m going to start making stuff up and calling the hotline every half hour on you.
Ray: The most common question I get actually, so for context, we’ve been in business for nine years. We serve clients in 50 countries. Our smallest client has eight employees. Our largest client has 30,000 employees plus four million constituents that can use Red Flag Reporting. So you can see there’s a pretty broad range there. And again, 50 countries. You think about the size, you think about the timeframe, you think about the geographic reach that we have and I share that because in all that time among all those clients, I have only twice, this sounds exaggerated. I have only twice had a client call me up and say, hey Ray, we looked into a case and found it was not true. Only twice.
Now I will put a caveat in there that our clients aren’t required to give us that sort of update. But my point is, if that was a significant issue, I think I would hear it more. Part of the training that we help our clients do with their employees is really stress what is acceptable, what should be reported versus what shouldn’t be reported.
Dave: So this service is available for companies of all levels, shapes and sizes as you mentioned. All industries, doesn’t matter whether it’s manufacturing or professional services, medical.
Ray: Correct.
Dave: Anything and everything.
Ray: Everything. People do ask me what industries are best served by this. It’s a little bit facetious, but I say if it’s an industry that employs human beings, we’re all capable of going off the ranch. We’re all capable of making bad decisions. Then the idea is to prevent one bad apple from spoiling the bunch.
Dave: It sounds like it’s pretty expensive.
Ray: It’s not. It’s surprisingly affordable. I would tell you two to three times a week I hear that’s not what I was expecting when I give a price quote and they’re expecting much higher.
Dave: Hey, we’re both CPAs. Give me the return on investment.
Ray: Let me give you a real case that’ll give a return on investment.
Dave: Sure. Change names, right?
Ray: I will not give any names, I won’t give the industry, but this is a real case.
Dave: Now we’re getting to the good stuff.
Ray: This was practical. I’m going to give one specific topic but this example repeats itself daily with us among, again, unsafe, unethical behavior … . But just a very practical real example. We had a case come in for one of our clients. Our client pays $2,500 per year for this service. We have many clients that pay less than that. So, anybody listening to this, I would say, just give a call to Chris and Ray here and find out a price, get a quote.
Dave: Is that the famous Chris Liebtag.
Ray: Chris Liebtag, thank you, sorry. And to make sure you get a quote. There is a nothing to lose and probably a very pleasant surprise. But anyway, so this client pays $2,500 per year. They have multiple facilities along the east coast. At one of their facilities, they had an individual who was being racially harassed. This was a no brainer case. One, the victim was a long time trusted and credible employee. Two, many coworkers were also credible witnesses to what was occurring. Three, there was clear written documentation with an audit trail. It was a slam dunk that this fellow was being racially harassed.
Anyway, his approach was, I just want to be treated with respect. That’s all we all want. He just wanted to be treated with respect. So what he did, he was at a branch location, I mentioned them in multiple locations. He’s at a branch location. He doesn’t know anyone at corporate. He doesn’t really know how to get ahold of them, but he does know Red Flag Reporting because there’s a poster hanging up in his break room so he calls us. He shares with us his experience and actually shares with us copies of the written documentation that I alluded to. We get the report within a minute, as I said, within a minute, literally, our client is aware of this issue. Within a half hour, they already have the victim on the phone and they’re consoling him, letting them know that they care and they’re taking action.
Roll the tape forward a bit. They do their investigation, innocent unless proven otherwise. They do their investigation. The culprit, the bad guy gets terminated. The victim is grateful that his employer cared enough to take action and that was it. The victim didn’t really have an interest in suing, getting a settlement, anything of that nature. The victim just wanted to be treated with respect, which again, I think we can all appreciate.
Roll the tape forward a little bit further. Our client’s legal counsel tells them, gets back to them and says with the fact pattern, the credibility of the people, the credibility of the evidence, the severity of what was taking place, between legal fees, settlements or worse and fines, you’re looking at over $200,000 in damages. So my client was pretty happy that they avoided all that. And it was a slam, I mean, this one is a slam dunk. So I shared with them that one case approximately paid for our service for 100 years. That was just one case. You do the math. If it’s over 200,000 …
Dave: That’s a good rate of return there.
Ray: That’s a very high rate of return.
Dave: So, let me throw a couple of other things in the time we have left, kind of situations and you go, yeah, we got that, yeah, I had that. Let’s talk about financial, things like theft, collusion, price fixing.
Ray: All of those, absolutely. Again, we started off as a fraud hotline so that was the beginning. We have seen anything from that to people stealing inventory at a retail outlet. In a retail outlet, we’ve actually, one of the more off the wall cases we uncovered was the drugs being sold in and out of a location of a pizza shop chain. So again …
Dave: HR issues, we already talked about that. I’m going to guess harassment, sex, age, gender, sexual orientation, religion, any kind of discrimination going on can be reported to the hotline.
Ray: Can be reported. Every one of those that you just said are specific options on our reporting channel.
Dave: Safety issues?
Ray: Safety issues, absolutely. So, anything from improper dumping of materials that can be caustic to, one that comes to mind very quickly is overhead crane, someone thinking that the joystick that was controlling the overhead crane with a metal beam on it was a fun toy while employees were walking underneath. To driving a forklift drunk, driving a backhoe drunk.
Dave: Forklift races in the back.
Ray: I shouldn’t laugh but, yeah.
Dave: Compliance issues.
Ray: Compliance issues, very robust.
Dave: Smoking weed in the parking lot?
Ray: You can cover it, yup, drugs. And the compliance issues by the way can go, can get further into those related to medical practices. So it’s again, very, very diverse.
Dave: Can the hotline be used as a suggestion box?
Ray: Absolutely. Now what’s interesting again with our offering, so you’re hearing all these different things. So safety, compliance, financial, HR. One thing that’s beautiful about our pricing structure too it’s you pick and choose which of those categories you want and it doesn’t affect your pricing. So, if you want them all, you can have them all. Suggestion box is one of them. Interestingly, only about 40 percent of our clients choose suggestion box. I don’t know if people just don’t want, they don’t want suggestions, but, yeah, about 40 percent choose suggestion box.
Dave: So in the next few minutes we have left, let’s quickly cover, you covered a lot of stuff. And again, going back to protect your reputation and protect your bottom line and the rate of return on this is just fantastic. How do I get started? How do our listeners get started if they like what they hear?
Ray: Just give Chris Liebtag a call and he is going to walk you through it. Here’s the beautiful part. So one, there is not an employer out there, I’m very serious about this, price is not going to be an issue because the price was always scaled based off your employee count and it’s going to be a relatively small cost per employee. So the price will not be an issue, I assure you that. So, give Chris a chance to give you that quote.
But then beyond that, Chris is going to give you a very easy step by step instructions. Other than the multinational clients that we have, which is not going to be the norm. The setup time would probably take a typical client about two hours.
Dave: Two hours.
Ray: Yeah.
Dave: So it’s not complicated.
Ray: Not at all.
Dave: Not Expensive.
Ray: Not at all.
Dave: Compared to the benefits.
Ray: And compared to the consequence.
Dave: You know, let’s close with one last question. Again, this is more out of curiosity. Out of all the claims that or conversations or calls that you’re getting now, that your organization Red Flag Reporting is getting, what percentage of those are sexual harassment issues?
Ray: So at the moment, it’s a high percentage.
Dave: High percentage.
Ray: So when I say high, it would be in the neighborhood of 30 percent. So it’s not like the #metoo movement has gotten people, everybody picking up the phone and calling. But in general, the HR issues are the majority over time period. So it doesn’t matter what’s making the headlines, HR issues, financials, also a big one. It actually goes HR related, safety, financial.
Now, the big thing here is, so we talked about the scenario, what if someone’s playing games? And I talked about how that really doesn’t happen. The other thing that happens is the reports we get by far and large are significant. So they’re typically not someone calling to complain that a coworker’s leaving a dirty coffee cup laying around. They are significant issues. They are without a doubt something you’re glad you heard about.
Dave: Great. Our guest today has been Ray Dunkle, president and founder of Red Flag Reporting located in Akron, Ohio. And Ray, great presentation today. We’re going to have to have you come back and have another presentation, the podcast community is going to really enjoy this presentation.
Ray: It’d be my pleasure.
Dave: There are really a lot of great issues and uses for hotlines and whistleblowers. Thank you for joining us to talk about some of these benefits. Great job, Ray. Listeners, if you’d like to learn more about hotlines or Red Flag Reporting, send an email to contactus@reacpa.com. Not only can we put you in touch with Ray, we can also put you in touch with Chris Liebtag, president of Rea Consulting Group, and we’ll be happy to share our own experiences with Red Flag Reporting and the service with you guys.
If you enjoyed this episode of unsuitable, give us a thumbs up, leave a comment or pass it on to a friend. We also have videos of each episode on YouTube. Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box.
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