Financial Foul Play: A True Tale from Greg’s Workplace
There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Earmark CPE: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app. Take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.
Greg Kyte: Hello and welcome to Oh My Not a Fraud, a true crime podcast where sometimes we need to emphasize that neither crime nor fraud occurred [00:00:30] in this story so that we can avoid slander lawsuits. I'm Greg Kyte.
Caleb Newquist: And I'm Caleb Newquist.
Greg Kyte: So, Caleb, like we like to do before we get into it. Are you good? If I read a nice five star review real quick.
Caleb Newquist: Oh, I only enjoy the mean five star reviews, but if you must.
Greg Kyte: Well, this one, this one's not mean, but this one's very unique as far as reviews go. Uh, Seth, CPA 429 writes, quote, I'm just [00:01:00] here to get paid. Thanks, Greg. And gave us five stars. And that kind of puts puts me particularly in a bit of a moral pickle.
Caleb Newquist: Yeah. It does. Um, because in I believe the Airbus episode, which I think was episode 71, you said you'd pay listeners 100 bucks for every five star review. Is that right?
Greg Kyte: Yeah, I'm pretty sure I did. I need to relisten to it to see exactly what the offer was, but apparently CFA, CPA for 29, uh, nose [00:01:30] knows what an easy buck is out there to be made and left us that, uh, that five star review real quick. Um, so here's my here's my problem. Caleb. Okay. Is either I have to pay a bribe, uh, which is ethically wrong, or I have to lie, which is also also ethically wrong. So really, uh, one way or another, I'm going to hell for being ethically compromised. So I think I'm just going to stiff, stiff CPA for 29 And go with the lie rather than the bribe. And [00:02:00] I mean stay $100 richer and just as ethically compromised. I mean, I don't.
Caleb Newquist: Think you're going to hell. I mean, mostly because I don't believe in it, but. Okay. Uh, but I'm looking at the review and, uh, Seth, CPA for 29, who is probably born on April 29th. Uh, they didn't leave their Venmo handle, so I'm not sure how you could even fulfill this promised bribe. And, um, like I said, I don't think you're going to hell. Um, your conscience is clear, at least [00:02:30] in my book.
Greg Kyte: Nice. I love a good loophole. Out of hell. If you love. If you. If you left us your Venmo, we would have totally paid you our bribe. Right. So, so. And and I'm sure if Seth, CPA is listening, they're going to write another five star review with their Venmo handle. Hopefully one can hope. Well, if you like. Oh, my fraud. Uh, please take a minute to write us a review. Uh, who knows, we might feel obligated to read yours on the show. Also, if your firm is looking for in-house ethics or fraud training, that doesn't [00:03:00] suck. We do that too.
Caleb Newquist: We also do keynote addresses at events and conferences. If you want more info on pricing and availability, send us an email at OMG fraud@earmarks.com.
Greg Kyte: So, Caleb, uh, did I mention that in today's episode, uh, that it's not about fraud and that no one committed any crimes? Wait.
Caleb Newquist: No. Are we changing the podcast? Is this a different podcast now? What are we talking.
Greg Kyte: About for this one? It kind of is. Oh, okay. Because [00:03:30] just to make sure any and all listeners understand, no one in today's episode was ever formally accused or charged or convicted of committing any crimes.
Caleb Newquist: But this is a true story. Something that actually happened to you, right, Greg?
Greg Kyte: Well, I think let's let's tweak that and say it's based on a true story. Okay. Uh, so it is absolutely 100% true, except for the parts that I change or the stuff that I don't remember because most [00:04:00] of this happened over a decade ago now.
Caleb Newquist: So you're changing the names and some of the details to protect the innocent.
Greg Kyte: That's exactly right, because we cannot overstate this. No one in this story or in the actual events on which this story is based, was ever found to be guilty of anything by any court of competent jurisdiction.
Caleb Newquist: Okay. So, Greg, you did not start before we kind of get into [00:04:30] this story, I think it's important that we kind of lay the groundwork, create some context, you know, set the scene, all those things. Um, you did not as, as, as dedicated listeners of the podcast know you did not start your career as an accountant. No. You started your career as a middle school and math teacher.
Greg Kyte: That's right. Yeah.
Caleb Newquist: Okay. So you go back to school. Yeah. Get the. You get the accounting degree. And you did a masters, if I'm not mistaken.
Greg Kyte: Yes. Yeah. So an.
Caleb Newquist: Mba or did you do [00:05:00] an.
Greg Kyte: Ms.. Oh I did. I did an MBA with kind of an accounting emphasis.
Caleb Newquist: Yeah. An emphasis. Okay, great. All right, so you did that. And what year is it? What year is this?
Greg Kyte: So this is let's see I finished up my accounting degree in 2008. So I think it was like spring of 2008. I finished the bachelor's in accounting and just rolled right into. I think I yeah, I think I got the summer off and then I started doing the MBA.
Caleb Newquist: So two years in the executive MBA. And did you interview on campus? How did how did you get. What was your first [00:05:30] job after completing all the school?
Greg Kyte: So I was basically offered a job at a mid-size local firm for and I for, right as soon as I finished my accounting degree. So I went ahead and took him up on that. And yeah, I what I finished the 2002, 2007, 2008 school year, uh, in It like right before Memorial Day. And I took a three day weekend. And on the Tuesday after Memorial Day, I started at the at the firm. Okay. [00:06:00]
Caleb Newquist: So tell us about that firm.
Greg Kyte: I was on the QuickBooks team, so I was in the technology department. I was in the QuickBooks team. They hired me for the QuickBooks team knowing that I had never opened before. That seems.
Caleb Newquist: Seems odd.
Greg Kyte: Yeah. Well, it was it was basically it. Well, I mean, again, it made sense because even my the manager who hired me, she was like, I'm hiring you because I, because I, because I think you're the right person for our firm. [00:06:30] I can train you on the technical stuff. Oh. So but I did have. So there was a, there was another manager in the firm. She was in the tax department. Okay. And she had she had a client. And at that client, it was, it was a very it was a small business and they had exactly one person at that at all. What? What would you say? Someone who worked for the client's company, who knew how to use QuickBooks. Okay. And that one person quit on [00:07:00] them. And so they.
Caleb Newquist: It was the client's employee.
Greg Kyte: Yeah, it's the client's employee. Okay. So, um, so they needed to get someone else in that client's company trained on QuickBooks.
Caleb Newquist: Oh, like your firm was going to find somebody to take that job. Or.
Greg Kyte: No, no no, no. They they wanted me. So. So this tax manager snagged me and said, hey, Greg, how about you teach someone else at my client at my client's company how to use QuickBooks? So I was basically just going into train, train [00:07:30] a new person how to how to use QuickBooks. Because I had I had a solid three months of QuickBooks under my belt. You're you're.
Caleb Newquist: You're a you're a you're a seasoned veteran by this point.
Greg Kyte: Although funny. Funny enough, I was a a certified QuickBooks ProAdvisor. You can knock that out in like a couple of weeks and a couple of quizzes. So so it was that. But but here's the crazy thing. I started going to this to this client. So I became part of the engagement with this client and, and the very first thing I did, like I said, I was supposed [00:08:00] to teach the boss's wife how to use QuickBooks. Okay? And I show.
Caleb Newquist: Up. The boss at the client.
Greg Kyte: The boss at the client. Yeah. Okay. Yeah. So his wife, his.
Caleb Newquist: Wife works at this business?
Greg Kyte: Yes, exactly. And and I show up. She is the sweetest, nicest person ever. Like, so, so kind, so fun. Very interested in me, asking me lots of questions, making me feel very seen. And she also very quickly tells me she's like. So [00:08:30] I mean, the way she painted it was like basically I, I drew the short straw and I'm the new person who has to learn QuickBooks. And she is like, I do not want to do this. And she's like, can we? Instead of teaching me how to do QuickBooks. Will you just do it? And I and I was like, I mean, to me I was like going, I will if that's okay for me to do that. Because again, I'm just looking for billable hours. Right. And if and if all of a sudden this goes from a few weeks of training [00:09:00] someone the basics on QuickBooks to kind of this ongoing thing where I'm sort of like outsourced bookkeeping, outsourced, you know, that sort of stuff for them. I go, that sounds awesome. So, so let's do that. So that's that's how the engagement started. And I loved working there. She was fantastic. Her husband, who was the boss of this company, he was nicest guy ever too. Yeah. And wait a minute.
Caleb Newquist: Very much enjoyed the two nicest people in the world are married to each other. Yes, they. I'm immediately suspicious. [00:09:30] Are you? Yeah. I don't like the sounds of this one bit. Before you go any further, I just want to, like, level set a little bit for the audience. But because we haven't mentioned it yet. But, like, what kind of business was this?
Greg Kyte: So this this was a so it was a medical office building basically. It was like one building. Yeah. Yeah. One building.
Caleb Newquist: A single building.
Greg Kyte: A single building. 100,000ft². Okay. Probably about I'm going to say about 25 different owners, [00:10:00] maybe. Yeah. I mean, it fluctuated. It fluctuated a lot. So probably anywhere between two dozen owners and three dozen owners. Okay. And the owners were the doctors who had offices in the building. So it was basically like they invested in the building, and then they would have an office in the building. Got it. In which they invested.
Caleb Newquist: Kind of a, uh, kind of like, uh, going in with your buddies on a house.
Greg Kyte: Yeah. Kind of like that. Yeah. And and, uh, it was, uh, it it was. Let's [00:10:30] see what's the best way to say this? Oh, so so the industry, it wasn't. It's not the medical profession. It's really commercial real estate business. Yeah, it's commercial real estate, but specifically commercial medical real estate.
Caleb Newquist: Got it. So. All right. So that's how it worked? Yeah. So? So tell us more about the boss. Like who? Who's who, who's running this operation?
Greg Kyte: So a great guy. Like I said, great guy. Um, nicest guy ever, apparently. Yeah, one of one of them. And again, I, like I [00:11:00] said, I this was like a a glimmer of light in my otherwise, you know, dim, dim first year job as an accountant. I would go and I would seriously. So I'm going to for the sake of the story, we're going to call him John Bolton. Oh, um. Fun name? Yeah. Mostly because he looks so much like former Secretary of State John Bolton. That's the that that. But but also, you know, to to again to protect the.
Caleb Newquist: Secretary of state call him or UN ambassador. I'm gonna I'm gonna get to the bottom of [00:11:30] that real quick. Former United States ambassador to the United Nations and the 26th United States National security advisor. Okay.
Greg Kyte: Oh, maybe that's what I'm thinking. Still a big job.
Caleb Newquist: Those are big time jobs.
Greg Kyte: Yeah.
Caleb Newquist: So yeah, he has a he has a look John Bolton. Yeah.
Greg Kyte: Exactly. Yeah.
Caleb Newquist: He's got a look.
Greg Kyte: And so again you can tell that. Yeah. So so anyways that that was the that's the general vibe of this guy. Um here's one other one other uh, tidbit that's important to the story is that John Bolton was not an owner in the company. Oh, he was [00:12:00] he was a manager for the company, so he kind.
Caleb Newquist: Of like he was a hired gun.
Greg Kyte: Yeah. Well, and very much so. And and even. And again, was he a.
Caleb Newquist: Physician, though? Was he, was he a doctor?
Greg Kyte: Nope. He was not a doctor. So he was.
Caleb Newquist: A business person. He knew how to run the type of business that these doctors. Yes. Were, were engaged in.
Greg Kyte: Yes. And he and so he. Yeah. So he didn't he didn't own in the company. He was he was the manager. But also one of the things that's very interesting, doctors are incredibly busy because [00:12:30] one thing that I found. Everybody thinks doctors are just, you know, they're wealthy. They just think doctors are wealthy.
Caleb Newquist: Golf a lot.
Greg Kyte: No, that's the thing. They don't have time.
Caleb Newquist: No, and that's what I'm saying. That's what people.
Greg Kyte: Think. Yeah, that's what they think. But, but, but the interesting thing, now that I work so closely with so many doctors, I found, I found out a strange thing about the profession is doctors. They they're like. They're like the owner. They're the boss of their practice. But they're also like the main, if [00:13:00] not only technician for. So it's like it's like if you owned an HVAC business, but you also had to install all the HVAC units. That's like that's basically what a doctor is, because they're the ones who have to perform the surgeries or whatever it is. They can't delegate that to someone else because they're the only ones who can do it. So doctors are incredibly busy. They need someone like this to be able to manage the investment that they have. So but oh, the other thing, and this is going to become important later in the story as well, is that [00:13:30] John Bolton wasn't even an employee of the company. He was set up as an independent contractor. So he had his own LLC that had like a contract with the company to. To provide management services. So he didn't he didn't get like a W-2. From the company. He just, you know, every month they just cut him a check for his. Uh, well, I guess we'll get into that periodically. They would cut him checks to. Compensate him for his his managerial services that he provided to the company. [00:14:00]
Caleb Newquist: Okay, so you've got this pleasant engagement, and there's some nepotism, right? But nepotism isn't a crime. Nepotism is. It's that's that's the that's the. That's the bread and butter of American business, Greg. But I guess I should. Ask the question, uh, how much nepotism was going on in this business?
Greg Kyte: So it was it was actually a lot of. So it wasn't just that he hired his wife as his assistant. [00:14:30] Um, there was also. So. There was employed in this organization was his wife, his son, his daughter, his stepdaughter and his nephew, and his nephew and and that one employee that left the one employee who did know QuickBooks, that was his other son who actually moved out of state. So, uh, so there.
Caleb Newquist: Wasn't there wasn't a big falling out, dramatic falling out.
Greg Kyte: Um, interestingly enough, there definitely was some resentment. Uh, I mean, I could tell that there was there was some drama that [00:15:00] that occurred when that son left, but I wasn't privy to all of it. And, and a little bit of resentment on, uh, on the boss's side that that his, uh, that his son would leave him, leave him to go try to strike it out on his own. Yeah. Kind of kind of kind of a sense like that. Yeah.
Caleb Newquist: All right, all right. Okay. So you got, uh, not a little bit of nepotism, a lot of nepotism. Yes. Yeah.
Greg Kyte: Because, yeah, because there was maybe there was maybe four other employees besides that, that weren't [00:15:30] that weren't that relevant.
Caleb Newquist: You're talking non-owners. Yeah. Yeah.
Greg Kyte: Yeah. No, I'm talking not. I'm just talking within. Within the team. Yeah. There was maybe. I mean, other than family members, there was maybe like 3 or 4 people who weren't who weren't related to that, to the Bolton family.
Caleb Newquist: Okay. So I guess my next question is what what was unusual about this? Like, this is obviously a story that we're, we're we're talking about.
Greg Kyte: Yeah.
Caleb Newquist: And so like so what? So [00:16:00] what come what? You're working on this client. There's some nepotism. So that's something. Yeah. But like what else comes up.
Greg Kyte: Well the here here was the big thing at the end of the year. So again part of my job it evolved into to closing the books. I had to close the books at the end of the year to get things ready for the tax return. And the CPA firm that I worked for also. Yeah, they do an.
Caleb Newquist: Audit too, right?
Greg Kyte: Well, it was just a compilation. That's all they needed to do.
Caleb Newquist: Okay. So you're compiling these things. It's end of year and what like [00:16:30] what what are some of the big things that you gotta you gotta like when you do, when you're when you're closing the books at the end of the year, there's always like these big meaty things that you got to take care of. So, like, what'd you have to take care of?
Greg Kyte: Everything was pretty normal. Like, okay, again, a lot of the work had to do with all these loans that were that were extended to the, to the, um, to the, to the various investors in the company and making sure that those all tied out and then preparing a, you know, reports for them to make sure that they, they, they knew.
Caleb Newquist: So they would know where they stood. Exactly right.
Greg Kyte: Exactly right. But in terms of closing [00:17:00] the books out, everything, I mean, everything was really normal, except there was this one glaring difference. And that was that was when, again, the manager that I worked under at the CPA firm, uh, she tells me she's like, hey, uh, so one of the jobs we have to do to close out the books is we got to go back through all of the records, and we need to to find all the checks that were written to John Bolton or to his, uh, his LLC that he set up for his managerial services. Okay. And we need to make [00:17:30] sure that that ties out to his contracted amount that he's supposed to be paid every year, which which was $144,000. Um, which which I mean, right. Then that sounds that sounds pretty normal. Make sure that he got paid what he was supposed to get paid, I.
Caleb Newquist: Think so, I think it does. But then.
Greg Kyte: But then the but then it was told to me this like if, if he ended up taking more money than he than 144,000. We need to figure out what that is. And we need to roll that into his loan that he has [00:18:00] with the company. Okay. That's when things started sounding a little bit strange to me.
Caleb Newquist: So had you prior to this point, had this loan, had you had you did you know anything about this loan?
Greg Kyte: I, I did not I don't think I knew about the loan until I was closing out the books for that first year when I was on the engagement.
Caleb Newquist: Okay. So you learned that there's this existing loan. Yeah. That he has. Yeah. The company. So what did you learn about this loan?
Greg Kyte: Well, well, the big thing I learned was that, well, [00:18:30] when I closed out and I. And it's funny, I went back through the records to prepare for our interview today and. Okay. And, and and I found I mean, it was strange because I started looking at because again, 140, I mean, we're both quasi math people. And if you're going, you're getting paid $144,000 for one year's worth of work, 12 grand.
Caleb Newquist: 12 grand a month. Exactly.
Greg Kyte: Yeah, that's that's exactly. So going through the records for that year, for that first year, there were zero checks [00:19:00] that were written for $12,000. Okay. They were I went back through every check was either for $10,000 or $20,000, with the exception of one check that was written for $5,000. Okay.
Caleb Newquist: And and none of those are divisible by 12.
Greg Kyte: None. None of those are divisible by 12. And when when I added it all up, I mean, it was it was more than $144,000. All right. Is what he pulled out? Okay. Um, but the problem to me was that it wasn't just a little bit more than $144,000. [00:19:30] He he had he checks had been written to him or to his LLC in that first year, uh, $260,000 worth of checks. Wait, what? Two $260,000 worth of checks was written.
Caleb Newquist: In a 112 month period.
Greg Kyte: In 112 month period, which means that he received, uh, 100. And am I doing the math right? $116,000 more, almost double [00:20:00] his salary? Yeah, almost double what with what he received. So, uh, so and so his, uh, his loan. The other thing that was eye popping to me at this point was that his loan with. Not because the other thing that we have to do because there was interest on this on this loan. Sure. And so I also had to calculate how much interest had accrued on the loan during the year. And I needed to roll that into the loan as well. So between the $116,000 [00:20:30] of of the loan and with the interest that accrued on it, I think we were talking around $140,000 was added on to his loan.
Caleb Newquist: All right. So let's let's let's take a beat here. This guy is getting way more than he's contracted for, almost twice as much as he's contracted for. Right. How how does that work. Like how does he. But and you're. And who's cutting the checks. [00:21:00]
Greg Kyte: Oh so okay. So his so basically this is, this is how I just over time I sort of piece this together because I wasn't one of the things I did not do at this point for this company was I did not I was not printing checks or writing checks on behalf of this company. Right. So the best that I could gather is.
Caleb Newquist: Something that sometimes firms do. Let's just let people should know that don't know. That is something that that isn't. If you were doing that yeah that wouldn't [00:21:30] be unusual. Right. It would in this case you're saying you weren't doing I was not know.
Greg Kyte: And so the so the best that I can decipher and I don't think I well, I never really had to even ask the question because what became clear over time is that it when John Bolton needed money, he would have a check written to him and he would. But but he did not have, [00:22:00] uh, authorization authority at this at the company. So he could he could write a check. He couldn't sign a check is basically what it is.
Caleb Newquist: Okay. Does that make sense? So he was writing the checks.
Greg Kyte: He was he was he was basically, uh, preparing the checks and just just like he would have to prepare. And again, it wasn't really him. I think it was his wife that was mostly doing this would prepare the checks. He didn't have checks signing authority, so he would prepare the checks to be signed. But then there'd be checks for utilities, [00:22:30] there'd be checks for telephone, there would be checks for office supplies, there'd be checks for a bunch of different things that would have to be signed.
Caleb Newquist: So he he's so he's he's authorizing the payment, all these payments.
Greg Kyte: He's he's requesting all he's requesting them. That's the best way to say it.
Caleb Newquist: That's the best way to say it. You're right. Yeah. So he's requesting all these payments. Who's who's approving the payments.
Greg Kyte: It's there's there's about there's about ten different owners. Like I said, the owners at large was somewhere [00:23:00] between 2 to 3 dozen at any given time. But there was about ten of those owners who were considered kind of like the board of directors. They they were the managing members of the LLC is what they were. And they all had checks signing authority. But the approval.
Caleb Newquist: Is different from signing a lot of times. Right. But in this case, it doesn't sound like it was.
Greg Kyte: Yeah. Yeah. So this is this is authorization to sign checks is what we're talking about.
Caleb Newquist: So also so you know, in in the parlance you might say approval and execution, the request, [00:23:30] the approval and the execution I.
Greg Kyte: Would say I would say requesting an approval were done by the boss. He would request the check and he would say, yes, these are the checks that need to be signed. Okay. But then once they were prepared, still not signed, either he or his wife or someone else would take them to a doctor who just happened to have a break in their busy schedule and say, hey, these are the checks that need to be signed, so we need you to sign them, okay? And and the doctors, this was my experience is they would go through them, they'd ask any questions that they might see from [00:24:00] that. But it wasn't always the same doctor who signed this, that, that sure, that day or that week's stack of checks that needed to be signed, it would really be whoever was there the day that they need it. You know, they had them and needed them signed somebody who they could get in between patients to see. So it it kind of makes the review process.
Caleb Newquist: So if I can just stop you. So the review there was like a in what a lot of our stories um, there's monitoring going on. Right. And in this case it sounds like [00:24:30] there was some monitoring. But the but the responsibility for that was spread amongst enough people that it wasn't consistent in a, consistent enough to like for any one person to be like I've seen a lot of checks to John Bolton and they're more than we pay him. So what's that about.
Greg Kyte: Right. And nobody nobody signed all of the checks. Right. Different people.
Caleb Newquist: Are signing them.
Greg Kyte: When you get down to it. And again, they weren't I mean that would make [00:25:00] sense. The one thing that's a little bit confusing to me, and I think this is just again, the doctors are busy. They probably don't remember what his that his pay was $144,000 a year. Sure. Right. So because my first thing if I was signing this check, go. Oh, here's a check for this much. How much do you get paid every year? Is this. You know, but they're not. They're not thinking that way. They're not. They're not asking those questions. They've got, you know, they've got a waiting room full of patients that are angry because they've been there for twice as long as they expected to be there, that [00:25:30] sort of stuff. So they're just trying to get back to business. So the monitoring stuff completely ineffective the way that this is set up. Okay. Because the only way to monitor it is if you are to keep tally of how much, how much, what the dollar amount of checks is that you've signed so far this year. And then also compare that to the other doctors who might be signing. So really there was effectively no monitoring going on. Okay. The monitoring was was what I was what I was being told to do at the end of the year. That was the monitoring.
Caleb Newquist: Okay. [00:26:00] So to recap, it's end of year closing the books. Yes, John Bolton is supposed to be getting $144,000 and instead he is getting how much?
Greg Kyte: $260,000.
Caleb Newquist: Okay. Greg kite his loan balance then if he was supposed to get one. 44. Okay, we'll do this math again. Yeah, he was supposed to get one. 44. He actually got two. 60. That's $116,000 [00:26:30] more than he got. And if I understand you right, that excess amount is supposed to be added to a loan that currently exists on this client. Your client's books. Yes, exactly.
Greg Kyte: And but but the loan didn't go up by 116. It went up. It was. I mean, again, I look back through it was it went up closer to $136,000 because of accrued interest, like we said. Okay.
Caleb Newquist: Yeah. Because it's because like, so it was it was a [00:27:00] loan. It was it took some form of a loan, like there was interest being charged to him. Yes. Okay. All right. So that's something.
Greg Kyte: But you're on to something. The other thing is all that there was, there was zero money being repaid on this loan, which I don't know if you've ever had a loan before. Have you had a loan before?
Caleb Newquist: I've had a loan before. Me too.
Greg Kyte: I've never had a loan where I didn't need to immediately start paying, making payments.
Caleb Newquist: I always had, you know, you know, I look, I maybe I'm not the smartest guy [00:27:30] in the world, but in my experience, banks are kind of sticklers about that, right?
Greg Kyte: You can't I mean, it's not it's not unheard of to to get loans where maybe some of the initial payments are deferred, like, like I think I got a car loan once where you the first three months you didn't have to make a car payment. Right. But but as soon as those three months were over, you had to this was this was this was not the case. There was there just had been no debt service made on this loan.
Caleb Newquist: All right. So that's not good. So [00:28:00] tell me then, $116,000 in additional loan made an additional 20,000in accrued interest Just 136,000. What is the total outstanding balance of this scare? Quotes. Loan, Greg.
Greg Kyte: Uh, at this point, at the end of 2008, uh, the total balance for the loan was $540,000. All right.
Caleb Newquist: And he's not making payments?
Greg Kyte: No.
Caleb Newquist: Okay.
Greg Kyte: And when did this nothing repaid on. Okay.
Caleb Newquist: So another key thing about [00:28:30] loans, as you, as our listeners may or may not know, is when it originated. So, Greg, when did this loan I'm using the scare quotes again. When did this loan originate?
Greg Kyte: So the loan started the best the best that I can find. Again, because this was this was I had to look back in the records from before I ever even started my like going down the accounting. Good lord.
Caleb Newquist: You have to go into like, a dusty basement and.
Greg Kyte: Uh, no, no, no. Fortunately, it was all still in QuickBooks. These guys have been using QuickBooks for [00:29:00] for a long time, but it was it was 2002. Oh, wow. This was so this was and I'm not sure exactly when in 2002 the loan started, but we were we were, you know, pushing six years that this had happened. Another fun fact about this loan, Caleb, there was no, uh, loan documentation for this. Oh, there was no. Yeah, there was not a contract. There was nothing signed. Yeah. Uh, nothing like that. So, um.
Caleb Newquist: Again, for the, uh, for the maybe uninitiated in finance and accounting, [00:29:30] uh, that's a big no no. Even if it's even if you're loaning it to your own employee, typically there is some documentation around these things.
Greg Kyte: Absolutely. Yeah. And and similarly so the, the way that this was expressed to me, not just by John Bolton, but also by my manager at the CPA firm, is it's a loan that he had been taking out to, to build and to finish a cabin that he had up in the woods. So the idea was that this cabin was collateral for the [00:30:00] loan, but also no documentation showing that the cabin was held in you know, in escrow. Right. For this, for this loan, if it were to not be repaid, which again, if you don't have the documentation, it's not collateral for the loan.
Caleb Newquist: Right. Okay. So like okay. So again I'm going back to my old accountant auditor days. But like that is 1,000% a related party transaction.
Greg Kyte: Oh yeah. Yeah.
Caleb Newquist: And so but there's no documentation for it. Zero. [00:30:30] And, um, you can if you're, if you're in a and if you're in an undergraduate level auditing course, this is the kind of thing they would cover. And they'd say, okay, uh, this is, is, is something that we're going to have to, um, uh, adjust the books for. Right. But so then my question to you, Greg, is your firm because you're still at the firm at this point. Yeah. Is your firm okay with all this?
Greg Kyte: The firm was fine with it. Okay.
Caleb Newquist: I am, I am, I am I am a little surprised [00:31:00] that they were okay with it.
Greg Kyte: Me too. Me too. I was, because here's the thing. I go, I mean, everything. The dollar amounts on this whole thing was eye popping. Yeah. In fact, the fact that that that John Bolton was able to to remove almost twice as much money as his contracted amount in a single year, that's shocking. The fact that this is set up like, I mean, basically like a line of credit for him. Yes. Because it's basically he can.
Caleb Newquist: He can draw on it at any time. If you need.
Greg Kyte: Money, just write another check. We're [00:31:30] just going to add it to.
Caleb Newquist: Line of credits require you to make payments.
Greg Kyte: They do they do require you to make payments. Absolutely. So so that's so so that that's sketchy. But also just the fact that it's that it's over a half $1 million. Yeah. That's loan there. That's that's also, uh, pretty pretty crazy. And I was also getting the vibe that nobody really liked this. Like the, like the boss, super friendly guy. Didn't really like talking about this loan when it came up. You could tell not his favorite [00:32:00] subjects like it's. No, it's no big deal. Lots of lots of lots of executives at companies have loans from their company is how he would he would. And it's like. And my my cabin's collateral. Everything's fine on this. No, no big deal. The the firm and here's, here's the other thing. I mean, back to his his position and the power that he held is he was he he unilaterally was the decision maker for who to hire for all of our services, okay. As a company. So he he could [00:32:30] just unilaterally fire my CPA firm if he decided to. So and again, being not that price sensitive, it was a pretty decent size client for the firm. So the so I know that the that my manager felt like she was kind of walking this tightrope of us like I need to disclose this loan that's going on, but I need to not to piss off John Bolton because he could he could send us packing at any minute. Right. And for as nice as he is, he could also have a bit of a temper. Okay. Um, so, [00:33:00] so, you know, you didn't you didn't want to get on John Bolton's bad side either. Right.
Caleb Newquist: And this is not like this is not unusual when auditors are involved in some of the stories that we've done over the course of the podcast. Auditors. Well, not I mean, you weren't an auditor. You were you were. You were doing accounting. You were you're the outsourced or fractional controller or whatever. But still there is this there is this kind of tricky balance that these firms have to take, which is [00:33:30] pleasing a client because that's how they get paid. But also accountants are rule followers. And so when a client seems to not be following the rules, maybe like they should. Accountants kind of get like their their relationships to the rules gets a little squishy because their relationship with the client is sometimes takes precedence over the relationship with the rules, right?
Greg Kyte: It's not supposed to. It's not supposed to. But but in the real it happens.
Caleb Newquist: Often it.
Greg Kyte: Does. And that's and [00:34:00] that's the whole thing. Because when we talk about auditors, auditors are supposed to be independent, correct? Um, but I was not independent.
Caleb Newquist: You were not an auditor, though.
Greg Kyte: But I was not an auditor. Different.
Caleb Newquist: Different situation.
Greg Kyte: And with a compilation, you're not required to be independent from your client. So it was okay that we were doing that based on the financial statements that were being produced by by the by the CPA firm. Right. But um, but yeah. When you but but the but the the dirty secret of accounting is nobody in audit is truly independent because [00:34:30] you're getting paid by the person that you're auditing. So no no one is textbook independent from their client. Okay. In that whole thing.
Caleb Newquist: So all right, so you get through this end of year, you know, all about this big hairy loan that is a big messy related party transaction thing going on. What happens next?
Greg Kyte: Well, well, first off, and I need to make make sure this is clear to you. Yeah. My my manager at the firm, she insists that she is telling the people who need to know about this loan. [00:35:00] Because. Because to me, again, I'm like going, oh my gosh, it went up this much. Is that okay? I can't believe. Do we need to tell him? Did he. What's how you know. Right. And she's just kind of like going. Don't worry about it. Every year I tell the people who need to know about the loan. About the. About the loan?
Caleb Newquist: Like the the outstanding balance. Whatever.
Greg Kyte: Yeah. And she and she. And again, I can tell the loan makes her nervous, but also she tells me that everything's taken care of. I'm just a knucklehead on this on this engagement. So I go, okay, everything. I'm going to trust the people that [00:35:30] I'm, that I'm working with and working for. Right. That this is this is okay because I'm being told by everyone that it is okay. So when I was getting close to my one year, uh, with the firm, I started talking with the boss about being about him hiring me in-house as their CPA because I thought they could save some money. It would get me into a job that I enjoyed more. I thought it was just kind of a. Well, it was a win win and maybe not a total win for the CPA firm, but people get hired away from CPA firms all the time. They do. So who offered.
Caleb Newquist: You the job? Did John [00:36:00] Bolton offer you the job?
Greg Kyte: I proposed it to him.
Caleb Newquist: You did?
Greg Kyte: I said, hey, I think this would be better for you. And I think it'd be better for me if you hired me in house, because again.
Caleb Newquist: And he and he liked the idea, and.
Greg Kyte: He liked the idea because, again, we were we were pals at this point. We were like, he he really liked me. I really liked him. There was this one lone thing that seemed kind of weird, but everybody was convincing me everything was A-okay. And the people who needed to know did know about the loan. So I was all just like green lights going on. And and I was excited to get this new job and start, start as the in-house CPA for this company.
Caleb Newquist: Okay, [00:36:30] so new job, new job for Greg. How how did things did things change when you went in house?
Greg Kyte: Um, no, not not so much. I mean, it was really just kind of, you know, the at this point I had had about let's see, I'd probably had about nine months experience of, of like how things, you know, how the books work, how how my job works as a, as an engagement. I knew how the company worked to, to the extent that I did at that point. So it was really just it was really just doing a lot of the same [00:37:00] work that I was doing before, but just getting my paycheck from a different from a different place. And again, it was very it was very like I was intrigued by the job because they also did, since they did not have an in-house accountant who was like trained in accounting. There was a whole lot of stuff that I just had to like clean up. Okay, inside there, like there was there was a lot of problems that just kind of had these Band-Aid fixes and, and had more Band-Aids put on top of those Band-Aid fixes over years. [00:37:30] So it was kind of like pulling off these layers and layers of Band-Aids to figure out what what originally happened. How can we make this simpler? How can we make this cleaner? How can we make it a little bit more straightforward? And I thought that I mean, that was just endlessly interesting to me. Yeah, that that kind of work. Um, so, so yeah. So it was just, it was basically doing what I was doing before the stuff that I was enjoying before, but even to a further extent, and I didn't have to go to any other engagements that I thought were horrible.
Caleb Newquist: Okay, [00:38:00] so the question on everyone's mind. Yes, yes. Is, now that you're in house, what's going on with the loan? Like what's how what what is that something that you are that you you are monitoring in a different way or more closely or like what's going on there?
Greg Kyte: Initially, no, I wasn't monitoring it more closely at all because I again, I had been reassured that everything was A-okay. Okay. But also in the back of my mind I go, this thing seems [00:38:30] seems like it's big and somewhat out of control. And so. So I didn't really I didn't monitor it very much, very much closer than I had before. But the end of the year came again. I had to close the books out for the first year that I was in house, uh, CPA and in that year, uh, 2009.
Caleb Newquist: Right.
Greg Kyte: And two this was 2009. And in that year, between additional principal and accrued interest, uh, the loan increased [00:39:00] by another $170,000.
Caleb Newquist: Wait a minute. Wait, wait, wait. So let's. Okay, hold.
Greg Kyte: $170,000.
Caleb Newquist: So to to maybe just take a step back to remind the audience he was contracted to get 144. Yes. And anything in excess of the 144 was put on his tab. Essentially, yeah.
Greg Kyte: Yeah, that's a good way to put it.
Caleb Newquist: Which is, which is this loan. And you're telling me that the following [00:39:30] year, after 132,000 was added? 130, another 170. Well, yeah, 116 plus the 20 grand in interest. Yeah. You're telling me that an additional 170,000in principal and interest was added? Yes.
Greg Kyte: And if you and the the.
Caleb Newquist: So that's that is double what he was contracted to be paid. Yeah. Yeah. That is more than double.
Greg Kyte: Well, it's more than double if you if you count the accrued interest for sure. I think the principal amount that he pulled out that year probably I guess [00:40:00] I don't have those dollar figures in front of me, but yeah, it was probably equal to his annual salary. And that also put his balance for the loan over $700,000, right, for that year.
Caleb Newquist: And he's still not making payments.
Greg Kyte: And he's and and in 22,009 he made zero payments toward this loan. Okay.
Caleb Newquist: And so how are you feeling about this?
Greg Kyte: Incredibly uncomfortable. Uh, just incredibly uncomfortable because, again, he doesn't want to talk about it. Um, and did you try. [00:40:30]
Caleb Newquist: To talk to him? Did you try to.
Greg Kyte: Talk to him? Oh, absolutely. Okay. Well, at this point, at this point, I'm so uncomfortable. And I am now the in-house CPA, and I'm. And I guess I was I was in the middle of my MBA program. I'm wanting to get licensed as a CPA because because I've got my hours. I don't have all the. I don't have all the, um, you know, the credits I needed. And I hadn't passed the exam yet, but that was my whole thing, and I'm going. The last thing I want is right out of the gate to get embroiled in some kind, in something that was criminal. Now, again, [00:41:00] to to reiterate, nothing that happened in this story or in the actual events that this story is based upon was was actually criminal or was prosecuted. But I was worried about it like, this was this was a big concern to me. And so what I did after closing the books out for that first year, I was like, I have to make this very clear to the member managers of this LLC that I now work for what's going on with this loan? Right. And so now, are.
Caleb Newquist: You working with are you working with [00:41:30] your former firm on this at this point?
Greg Kyte: At this point, I mean, not so much because at this point I had taken over all the I mean, this was this was bookkeeping and CFO kind of stuff at this point, which was all me at this point. So, so.
Caleb Newquist: So they so you're not you're doing this of your own accord. Like you're not. You're not talking to the your former firm and saying, you know, now that I'm on this side of it, it's kind of like, uh, you know, not looking totally kosher.
Greg Kyte: No, I didn't bring it up with them. Okay. I [00:42:00] didn't bring up my concerns with them because I knew that they were satisfied with what somehow and again, that's confusing to me, as in terms of how they were satisfied with how things were going.
Caleb Newquist: Because firms talk a lot about getting comfortable, you know. Yeah. And I just don't know like that, that, that I think that's the question in mind is like, how did they get comfortable with that? Right.
Greg Kyte: And and again, I also that's a unanswered question for me. And I would be I would not [00:42:30] be surprised if, if this had all devolved into, uh, some sort of criminal investigation, if the CPA firm, they likely would have been implicated with this. And B, I could have I could see a scenario in which they would have been found to be negligent in their duties. Okay, well, with the company. But again, that's speculation aside. Speculation.
Caleb Newquist: Speculation aside, you're you are you are bringing the this the this new loan balance which [00:43:00] is now in excess of $700,000. Yes. You're bringing it to the attention of the shareholder slash owners of this. To the board, to.
Greg Kyte: The board, to the. So a subset.
Caleb Newquist: Of the owners. So like the ten or so people. Yes. That are kind of like in charge. In charge? Yes.
Greg Kyte: And the people to whom I have been assured that they, on an annual basis, are being caught up, made aware on this, made aware of the loan. Yeah. And when I bring it up with them, they are saying we had no idea that this was happening. We maybe [00:43:30] we had an idea that this was happening. We had no idea. To the extent at which this was happening, we had no idea that there was no money being paid back on this loan.
Caleb Newquist: And so did you at this point when they say that to you. Like, what are you? Do you remember how that made you feel?
Greg Kyte: Oh, yeah. Well, again, it made me very confused because I was told something that was very different than the facts that I was finding, but I also, [00:44:00] I felt, well, I guess there's two, there's two, two main ways that I felt one, I felt reassured that I was doing the right thing because now I go everybody, the people who the people who need to know about this now they know, now they.
Caleb Newquist: Know about it.
Greg Kyte: And that made me feel good. Okay. The thing that made me feel bad was that I also just like how John Bolton had unilateral authority to fire the CPA firm and get a new CPA firm. He was my boss. He had unilateral authority to fire me. Right. And [00:44:30] to replace me or to not to replace me, to do whatever my career was in his hands. I don't.
Caleb Newquist: Understand it. Right? Like he just serves at the pleasure of the board and they give him full, Full. He. He had full rein to run the business because that's what he was hired to do. Yes. And so, yeah, that means hiring everything. Like literally everything. Like literally everything. So. Okay. So then if he serves at the pleasure of the board, you bring this stuff to the board and they're just like, we had no fucking idea that this was the situation. Right. [00:45:00] So then what did they do?
Greg Kyte: Well, that's the thing. And this this was the weird thing. And this is where you don't we don't typically get to get here with the cases that we cover on the podcast, because what I found is there was these weird, like, backwards, uh, interpersonal and even kind of like psychological consequences of what had happened with this whole thing. So what do you mean?
Caleb Newquist: So, yeah. What do you mean by that?
Greg Kyte: So what I mean is that the board of directors is made aware of the $700,000 loan. That [00:45:30] really is. That's not. It has no documentation.
Caleb Newquist: There has no documentation. He's not making payments. It's like right there. It's. He had a supposed cabin is the collateral. Right. Which is for obviously for personal use. So that makes a that's a big related party issue. So like yeah. So lots of weird stuff going on.
Greg Kyte: So this looks horrible. Yes. For the company and for the board. And like I said, the board then was [00:46:00] was very concerned that if the if the membership if, if all the owners of the company found out what had happened on their watch. Yep, they would get strung up, they'd be like, how the hell could could you, as the managing members of this company, how could you let this happen? Right. So they were very they were motivated to, to to take care of it in a quiet manner. Okay. A quiet manner does not include suddenly firing the guy who owes the company $700,000. The [00:46:30] other weird thing is John Bolton at this time is in his, in his early 60s And so and he this was his only job that he'd had since the 80s. Um, so he's he's pushed, you know, he's he's, uh. Let's see. He was pushing 40 years with the company at this point. If he had been let go from his position here, that they would the concern was how could he possibly get another job [00:47:00] where he could make enough money to repay the loan that he owes to us? So the only way this loan is going to get repaid is if we keep him on staff and we pay him his salary, through which he will then repay us the loan that he took from us. Which is the weirdest way to get job security in the in the history of business.
Caleb Newquist: There seems to be. There seems that it would be an easier way to go about it. Yeah.
Greg Kyte: Yes, exactly. [00:47:30] So, uh, so there's these. But the other, the other weird thing is I have to figure out how to tiptoe through this minefield that I'm involved in, where it's like I need to be transparent with the board, but I also want to not get myself fired from my job. Right. And so the way I approach John Bolton with this whole thing is I'm like going, dude, you. I mean, you've seen I've given you the reports. You owe $700,000 to this company. We need to. This is this looks bad for you. I [00:48:00] need to help you. You need to figure out how to back this up. How to get out of this. This pickle that we're in. Because this is this is a big damn deal. And and and so, so I think that's that's how I remember approaching it with him. Right.
Caleb Newquist: So then, so then was he pissed at you that you brought this up or like, because you said earlier that he got real prickly around this subject, right. So then like what happened with your relationship?
Greg Kyte: It it it it became increasingly more tense over time. But again, I tried [00:48:30] to I tried to I tried to frame it as I want to help. As a I can't not tell them about this because that would be my ass in a sling. And that's my job. But also, I want to do what I can to help you get out of this pickle that you that you found yourself in, where you owe $700,000 to this company and and and and so. Yeah. So again, it was difficult. But looking back on it, the thing that I still can't quite figure out [00:49:00] is why it never crossed John Bolton's mind. I should just fire Greg.
Caleb Newquist: Okay, Greg. Uh, so there's a lot of tension inside the company. For the first time, the board has a real understanding of, like the the the breadth and depth of this loan situation. Yeah. Uh, which is a nice thing to call it a loan situation. [00:49:30]
Caleb Newquist: Uh, there's tension between you and John Bolton. Uh, but there, but but there. But you are, I think. I mean, the way you described it, like like looking back on it, you're like. It's like I was trying to help him. Get him, get him out of this jam he was in. Right. Did you feel like, like looking back on that now? Do you feel like you handled that as best you could? Or would you do it if you were in a similar circumstance now, would you [00:50:00] do it differently? No.
Greg Kyte: I'm very proud of how I handled the situation. Yeah, I think throughout I yeah, I felt like I, I did I did the right thing if I, I mean really if I could have done something differently up to this point in the story, it would have been kind of what you were talking about earlier where it's like that. The first, the my first six months as an in-house employee monitoring those payments that were being made to him more closely. Yeah, that's the only thing that I could have done that I could see that I could [00:50:30] have done differently.
Caleb Newquist: Okay, so 2009 wraps. You close the books, you're into 2010. So then what? What happens in 2010 2010.
Greg Kyte: Him taking extra payments gets that. That's that that goes away. Okay. At this point I'm concerned enough about it. The board's concerned enough about it that that it's like you can't he can't make he can't take any additional principal towards this loan. Right.
Caleb Newquist: So he he has to live he has to live [00:51:00] on the 12 K a month. Right. Just just live with it, man.
Greg Kyte: Just just live with.
Caleb Newquist: Your 12 grand.
Greg Kyte: A month. Exactly, exactly. And and in that year, he also that's the first time he started making payments. Okay. On the $700,000 loan. Well, I'm sure.
Caleb Newquist: That really cramped his style.
Greg Kyte: It did. Well, it no, it didn't because what. So he started making monthly payments of $400, uh, to his $700,000 loan. Good lord. [00:51:30]
Caleb Newquist: That's like. That's like a fucking used Toyota Camry. Yeah.
Greg Kyte: It is. It is. I bought a I bought a Subaru Crosstrek in 2010, and I paid a like a 7 or $8000 down payment on it. And my, my payment on that is, is over $400 a month on my Crosstrek.
Caleb Newquist: So still getting a sweetheart deal.
Greg Kyte: He is he is. Well, but here's here's the kicker too.
Caleb Newquist: Is there's a.
Greg Kyte: Kicker. Yes. Is that at that point it was like, hey, you [00:52:00] need to you have to start making some kind of like, good faith payment on this loan. And, and and so he said, well, it's been years and years since I've received a raise from the company, so I'm not shitting you. He got a $400 a month raise, and he started paying that $400 a month. That was where he got the $400 a month to pay towards his loan. Fantastic. So. But but he also there was also some other money that was coming in towards the loan because he [00:52:30] was also there was a, there's a sister company, another commercial medical office building, and he was an owner in that sister company, and he was he was getting cash distributions on a monthly basis from that sister company. So this company required that he use those distributions from the other company to, to, to service this loan as well. So, so in 2010 in 2010 he did start making some payments. Uh, he was not taking [00:53:00] more money out of the company than he was supposed to at this point. But because of interest still that's accruing on this loan. Yeah. Even with the payments, even with these, these massive $400 a month payments, his the loan was still increasing. And in 2010, it still went up by another $20,000 just because of the interest. All right.
Caleb Newquist: So that was a sweetheart deal. He was still getting like, loan shark rate. Well, it wasn't a loan shark, Rick. You said it was. It was a favorable but reasonable rate.
Greg Kyte: It was. It was a.
Caleb Newquist: Favorable. He still wasn't making [00:53:30] enough payment. He was. His payments weren't enough to satisfy the vig, as they say.
Greg Kyte: Right. Well. And. Yeah. So we like I said, we had a, we had a very we had a very close relationship with our banks who loaned us the money to loan out to our doctors. That's another reason why this kind of didn't feel too weird, I think to him or to the to the member managers, because they all had loans from the building, right? But they had them to buy into the I mean they made these were but they also had the loans.
Caleb Newquist: With banks and those that banks require [00:54:00] paperwork and signatures. Yes. And we had.
Greg Kyte: Loans for all the loans that the company executed to its members. We had all the paperwork for all those loans, and people were making monthly payments every month towards those, and they were getting paid down in principle, not going up in principle. Right. So, um, okay.
Caleb Newquist: So so he's so the vig is still running up. He's still running up a balance because he's not paying enough. But he is making payments. Yes. So [00:54:30] so so then what?
Greg Kyte: So the story, like I said, was that this loan was for him to build a cabin. Yeah. So so the board eventually said, hey, if you've got this cabin, you should get an actual loan from an actual bank right on your cabin. And they and they basically forced him to do this. They said, okay, you have to go to the bank and get this loan on your cabin, and you have to pay us the proceeds from this loan to pay off your loan with the building. And again, [00:55:00] if the loan made sense for the cabin that he owned, he should be able to get a loan on the cabin. Yeah, that was enough to pay off his debt with the building. But the loan that he actually got and this was I mean, at this point, we're talking, uh, the beginning of 2012, he took out this loan on his cabin, but the amount that he was able to get on his cabin loan was $412,000. Okay, [00:55:30] so he still had a little short, a little short, still over $300,000 on his loan after pulling this this after getting this loan together. And here's what was very strange. There was other strange things that happened about this cabin loan that he did get from a bank. Like I said, we had huge loans with this bank, not just from our company, but also from the sister company and John Bolton. He made it. He didn't say it right out, out loud, but he [00:56:00] hinted at it and made it pretty clear to our bank that we bank with that. It's like, if you don't give me this loan on my cabin, I will take our 20 to. It was probably actually probably more like $30 million worth of loans we have with your bank, and we will take them to a different bank.
Caleb Newquist: Oh.
Greg Kyte: Playing hardball. Yeah, he was playing big time hardball. But the bank was still like, yeah, we still can't do that because you're not a good credit for our bank. And [00:56:30] so the only way that they would give him a loan is if he had a cosigner on the loan. Okay, so smooth talkin. John Bolton was able to go to a doctor who was a member of the board of this company and say he he pitched it like this. You will get a 50% ownership interest in my cabin if you cosign on this loan for me. And the board member cosigned on the loan for him. And that's how he got the loan for the $412,000. [00:57:00]
Caleb Newquist: Okay, so somehow John Bolton gets board member to cosign this loan. Yeah, so that he can pay a good chunk of it back of the the quote unquote loan back. What else happened? Was there anything? Did he have anything else that he could use to. Kind of like he's just trying to make good at this point.
Greg Kyte: He's he's trying to not lose his job at this point because he's got some he's if he.
Caleb Newquist: Doesn't make good, [00:57:30] he's going to lose his job.
Greg Kyte: Yeah. He, he's he has to make he has to make some serious. He that's the way that this is coming down is you've got to fix this. And again I don't think it was said right out loud, at least not when I was around. But maybe some of the board members made it clear to him that it's like if you don't if this doesn't get dealt with, it's it's going to cost you your job. And again, he absolutely did not want to lose this job. All right. So the other the other the other place that he had some resources, like I said, is he owned [00:58:00] a significant amount in that sister company to this company. Okay. So what so what? The company that I worked for, that he worked for this board. What they did is they said, you have to assign us your shares in this other company, and we'll credit your your loan with the building for that. They just had to.
Caleb Newquist: Agree on what they were worth, right?
Greg Kyte: They exactly which that was the kicker. Sure. They they decided that they would credit his account $280,000. Okay. For the for the shares in the sister company. And there [00:58:30] was.
Caleb Newquist: Like what you said three, 300 left.
Greg Kyte: There's 300 left. So but but interest had still been accruing. So, so after they credited the $280,000 for this ownership interest in the sister company, he still had about $60,000 left over at the end of that year. In his in his in his balance. But here was the big thing. He the amount that he owned in the sister company was originally valued at $200,000. And it's not that he paid $200,000 [00:59:00] into the sister company. It was credited to him and given to him as ownership for sweat equity as he as he was part of the process of developing that other company. So was it actually worth 200,000? Well, was it actually worth $280,000, which is what they credit for. And in my mind, because I was also doing some of the accounting for that other sister company, I was going it's absolutely at most it's worth the $200,000 that he was originally given as sweat equity in that [00:59:30] company, likely less than that. But again, they gave him $280,000 for it. That brings his total loan balance down to just $60,000.
Caleb Newquist: So okay, so you more or less fixed it.
Greg Kyte: More or less. More or less fixed it. Yeah.
Caleb Newquist: Over 700 K.
Greg Kyte: Down to 60. Yeah. It kind of fixed it. But there's a little bit more okay.
Caleb Newquist: So John Bolton does he completely kind of [01:00:00] escape consequences for the scare quote loan.
Greg Kyte: Yes. Oh he he absolutely he absolutely escaped all. So he kept his job. He kept his job. He Now, the thing is, he didn't completely escape consequences in general. Okay, so so here's what happens in mid. In mid he.
Caleb Newquist: Lost the cat. He had to give up half a cabin. Yeah.
Greg Kyte: Yeah. Okay. Half a cat.
Caleb Newquist: Half a cabin. And you know, he you know he he he had to assign his ownership in another [01:00:30] seemingly valuable business. Right. Yeah.
Greg Kyte: So those are a couple of consequences. Yeah. That's true. Those are some some very real life consequences. But. So those are consequences also related to his loan. But some other consequences that came up is when I close the books for 2013.
Caleb Newquist: Okay. So for 2013 now.
Greg Kyte: So now we're in 2013. Uh, well, we're actually in 2014 because I'm closing the books for 2013. Okay. Gotcha. Yeah. And and he and and I knew that things were not looking good throughout the year. I had been keeping [01:01:00] up with this. But the final numbers when I finally, when I actually officially closed the books, was that he overspent our budget for for expenses for the building by about 15 to 16%. Okay. So our annual budget was about $1 million for all the expenditures that were related to the property. And he had overspent it by about by about $160,000. Okay. For that year, which that's a huge I mean, if you in terms of variances, 16% variance on your budget, that's [01:01:30] huge overspending.
Caleb Newquist: Yeah. You blew through that budget.
Greg Kyte: Yeah. Like like big time. But the other problem and this is what I it's like I'm talking to him going we we blew through the budget and we're not we didn't tighten the belt for 2014. Like how how are we not going to just blow through the 2014 budget even more than we blew through the 2013 budget? And he just would not give me an answer for how he's going to make, make things, you know, keep us in the black, get us back to the being in the black [01:02:00] as a company. And again, I'm still a young accountant and I'm going, I am not going to be the CPA who sits by while his company goes bankrupt. Because how? How am I going to get my next job? They're gonna be like, oh, tell us about your last employer. Oh, they went bankrupt. Oh, while you were while you were the CFO? Yeah, yeah, while I was the CFO. Oh, did they did that just kind of come out of nowhere? Nope. I saw it coming, actually, for for quite a while. Uh, you know, that's that's that's what I was thinking. It was going to. Yeah.
Caleb Newquist: Not good at all. It's not a story you want to tell.
Greg Kyte: I'm not [01:02:30] good at all. So. So, I mean, it was so. And I kept coming up with these ideas of going, here's some ways where we could save some money. Here's some ways where we could trim the fat. Yeah. And I present them to you and he'd be like, it's not going to make it's not going to make him. And he's he wasn't wrong, but he was like, it's not going to make it a big enough difference. So he just kind of was like, I don't even want to do him. And it's like, you okay, if you're not even willing to make some different. So. So basically it became it. I had to go to the board at this point and say [01:03:00] it's either him or it's me, because this, which I hated because I felt like I was stabbing my friend in the back.
Caleb Newquist: Ultimatums are.
Greg Kyte: Risky. It was super risky and very. They very well could have said it's you. It's not him, you know. I mean, it's him. You know, however you it's you losing your job, not him. You. Right, exactly. So, um. But but they they did. They did just finally and again, it wasn't look for looking good for him with the board anyways because of the loan [01:03:30] fiasco. Yeah. And so they did decide to let him go in mid 2014. Um, but okay, uh, they did that and he still had a at this point he had about $50,000 left on the loan. They forgave the last $50,000 of the loan and very magnanimous. And they gave him an $18,380 severance check at the end of all this as well. [01:04:00] Um, how how they did that. Why they did that? I do how they came up with $18,380, I have no idea. But that's that was the decision made by the board. And that's how his relationship with the company ultimately ended.
Caleb Newquist: All right. So any any loose ends you want to tie up Greg? Yeah.
Greg Kyte: So so you remember that $280,000 [01:04:30] that they credited his account for his. Yeah, yeah. So those those membership units in that other sister company finally sold a couple of years later, and they didn't sell for $280,000. Caleb. They sold for $180,000. So the company effectively didn't just write off $50,000 of his loan. They wrote off $150,000 of his loan. Also, I've had a few off the record conversations indicating that John Bolton may have never [01:05:00] paid a dime on that cabin loan, but instead the board member who cosigned on the cabin loan paid every single payment. I cannot I cannot verify that. And technically, that's still not a crime. That's not fraud. That's what Cosigners signed up to do. As if the person on the loan doesn't make the payment. I'll make the payment. But the board member again, from what I've heard, the board member made all the payments on that loan.
Caleb Newquist: Now [01:05:30] they have a cabin.
Greg Kyte: And now they have a cabin. But the interesting thing, if you're doing all the math, the company recovered all of the principal that John Bolton took out of the company. So again, what they lost the $150,000. Arguably, that was all just interest that had accrued on this loan. And when we talk about different, you know, whatever fraud, pick any fraud that we've covered on this podcast, we don't we don't say, well, this is how much they stole. Plus, if you accrued interest on that for however long they were stealing that money, here's [01:06:00] how much interest We're just, like, happy if the company is able to get some of their money back. And the company. Yeah, this company was able to get all of the money back that was taken from the company. That's a huge win for any company that has any kind of shenanigans going on. So really the company was more or less made whole by the end of the whole process.
Caleb Newquist: All right, [01:06:30] Greg, uh, thank you for regaling us with your personal story of not fraud. Not fraud. Uh, but anyway, uh, did we learn anything?
Greg Kyte: We we did. Okay. I mean, I I'm interested to hear to know. Well, here, I'll tell you the these are the things. I've been learning things from this for a decade. Right. Because all this stuff, all this stuff, uh, wrapped up about ten years ago. So. But but I'm interested [01:07:00] to hear if there's anything that you learned from from my story of not fraud. Um, but but some of the things I do think it's it's incredibly interesting. Uh, the weird interpersonal dynamics that arise between the actual human individuals who are involved with fraud. Uh, like I said, with this one, it was it was insane to me that that that John Bolton was able to just fall [01:07:30] head over ass into additional job security by taking out this loan from the company because the board was embarrassed. The board was ashamed. The board was fearful of consequences that might be coming their way. Right. If this all became public. Um, and also, like I said, the fact that their only hope for him to repay the the loan was to keep him employed with the company. And actually, Again seeing that front row. I think [01:08:00] that was not so much a strategy that happened, but keeping him employed and basically forcing his hand to, to, to, to to take out the loan on the cabin and to turn over the shares in the sister company.
Greg Kyte: That was all. I mean, again, I don't think that was some master plan strategy, but keeping him employed and and having his employment be held in the balance if he didn't do those things, was really the way that they recovered their money. Yeah. [01:08:30] Um, but but like I said, it just that that was it was really strange. It reminds me of the Roslyn school district. Yes. Uh, because there was some weird interpersonal dynamics like that where they found that, uh, Pam Gluckin, who was the business administrator for the school district, they found that she had stolen some money, like a quarter million dollars. Right. And and the principal would also and both about both the principle and the business manager had stolen, you know, millions [01:09:00] and millions of dollars from the school district, but only a quarter million came out. And he's like, well, let's just fire her quietly. She'll repay the money, then no harm, no foul, and she's gone. And then we don't have to make a big deal out of it. And the board was like, yeah, that'd be best for us. We have a reputation to uphold, right? We don't want this to get out of hand. It's very similar dynamics that we saw to that.
Caleb Newquist: Right, right. And so as far as like postscripts like, uh, so is John Bolton still around?
Greg Kyte: I have not seen him since his last day working [01:09:30] for the company. Damn. Okay. I, I possibly because I am one of those people who, when I'm out in the wild, I don't pay very close attention to my surroundings. Oh. So, like, I've always worried about just running into him or to running into his wife, like at Costco or something like that. And we may have had some close brushes, but like I said, I'm I'm often oblivious to the people around me and what's going on so that if and [01:10:00] also I could see them going, oh no, they're, you know, them spotting me first and right, you know, and, and turning.
Caleb Newquist: On their heels and going the other way.
Greg Kyte: Exactly. Yeah, exactly.
Caleb Newquist: As far as, as far as, like the owners are concerned, like we're the, we're we're you know, you talked about how they wanted to they wanted to resolve this quietly. Like, do you feel like that there was any um, like how how did has have have people made their peace with this era of [01:10:30] their business like that? This. Yes. And is it it's just like, well, that's that's something that happened and like. And they feel like they've people. Has everyone moved on or like, is there is there still kind of uh, I don't know about it's not resentment because eventually they, they like you said, you got they got the money back and everything was kind of like Handled as bad as good as you could hope for. Um, probably better than you could hope for. And as you pointed out, if you get if you get the principal [01:11:00] back, like in a lot of cases, you know, victims are usually lucky to get 20 or 30% back of what they lost. So any anything as far as I guess, the I guess the victims in this case, like do you do you do you feel how do you feel. I mean, I'm asking you to speak for people, but how do you think is there any victim blaming to go around? I suppose I shouldn't ask you that because it's your job, but, um, because you're still there. So maybe we scratch all that, I don't know. [01:11:30]
Greg Kyte: No, no, no, I think, I mean, there there definitely is victim blaming that that can and should be, uh, you know, what meted out towards toward I'd say towards the board and, uh, and it's, I mean, it's hard for me to say and, and I guess I'm hoping that no one that I work with and work for ever, ever listens to this episode. Uh, but but but but I know that there that that they that the [01:12:00] members of the board who are still members of the board, which is a sizable chunk, surprisingly enough, after a decade. Um, that the ones that I still have conversations with about this, uh, thing that happened, there's still a lot of shame that they have where it's like they're still embarrassed, they're still wish it didn't happen. But that said, is that, uh, we after after he was let go, we we did a massive restructuring of the entire company and the team that was about ten [01:12:30] people, uh, was reduced to to about 2 to 3. And and just based on salary, the savings that we had from a personnel standpoint, we were able to, uh, I mean, obviously the this loan situation was rectified in and of itself, but then we were able to to turn around the spending with the company. So really we're in the we're in a stronger financial position now than we ever have been before.
Greg Kyte: Also, the board definitely learned [01:13:00] lessons from that, and they did. There's a lot of controls that have been placed on me because I'm now the I'm now the new John Bolton at the company, and there's reporting requirements that they put in for me, and also reporting requirements that I gladly comply with every single month because I'm like going, I need everyone to understand that this is a completely different, uh, governance situation than the company was in before. So I'm happy [01:13:30] to I'm happy to, to, to do all of that. And I still to this day I'm convinced so. So really there was one internal control that was in place and that was that John Bolton couldn't sign checks. Yep. And I'm convinced that if John Bolton had signed John Bolton's checks that were written payable to John Bolton, that this likely would have gone a very different direction, and that that's probably what saved his bacon. Um, from from just not getting fired right off the bat [01:14:00] and possibly getting authorities, uh, pulled in on this whole thing as well. And to this day, I, I will never I will never have check signing authority at this company because, uh, yeah. Because again, lessons learned are lessons learned. So I don't I don't want that and never will have that.
Caleb Newquist: All right. That's it for this episode. Remember it's not fraud if it was a loan.
Greg Kyte: Also remember in this case, it wasn't a fraud, it was a loan.
Caleb Newquist: If [01:14:30] you want to drop us a line, send us an email at oh, my. Fraud at earmarks. Com Greg Kite, where can people find you on the internet?
Greg Kyte: Uh, best place to find me is probably on LinkedIn. I am Greg Kite, CPA on LinkedIn, and my life has been so busy lately that I'm sure I am neck deep in DMs that are waiting to be replied to, and I promise I will get to them before the end of the year.
Caleb Newquist: That's not much of a promise.
Greg Kyte: It's not much of a promise, but that's that's the level of promise that I can make. [01:15:00] Caleb, where can people find you out there?
Caleb Newquist: Uh, I am Caleb Newquist, and you can find me on LinkedIn slash Caleb Newquist. Oh, my fraud is written by Greg Kite and me. Caleb Newquist. Our producer is Zach Frank. Rate. Review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, get some CPE. Greg. Greg has a CPA, so I do.
Greg Kyte: I'm all set. He's good, he's good.
Caleb Newquist: All right. Join us next time for more average swindlers and scams from stories that will make you say oh my, oh [01:15:30] my.
Greg Kyte: Not a.
Caleb Newquist: Fraud.