FCPA Compliance and Ethics Blog

April 16, 2014

Tales from the Crypt-Rule No. 7-Actions Speak Louder Than Words

Filed under: Best Practices,compliance programs — tfoxlaw @ 7:30 am

Tales from the CryptEd. Note-I inadvertently ran Tale From The Crypt, Rule No. 8 out of order, so today we present Rule No. 7, which reminds us that Mom was right, actions do speak louder than words…

This Tale from our Crypt reminds us that over the years, you think you’ve heard it all and seen it all when it comes to abuse of expense accounts. One common thread however flows through the stories: Crime & Punishment are not always linked and often dependent on who you are as much as what you did. As we reminisced, several amusing stories came to mind…

As a young pup working in a small office of a much larger organization, I happened upon an “abuse in progress.” The employees wanted a refrigerator in their lunchroom. They put their heads together and the operations director came up with a brilliant idea. They would bring in receipts from home for personal expenditures of supplies, postage and the like, submitting them as petty cash expenses. They estimated it might take a couple of months to raise the required funds for their refrigerator. Good thing they had not actually submitted any receipts for replenishment of their petty cash fund when I caught wind of it. Their goal was admirable, keeping low paid but experienced workers warm and happy in a cold, snowy climate. But their methodology was designed to avoid possible refusal of their request because the office was a low performer. Nothing beats feet & ears on the ground.

It’s amazing what a sample can uncover. I’m personally a big proponent of statistical sampling because you can draw very powerful conclusions from relatively small investments of time. With that said, the experienced investigator or auditor has an amazing 6th sense for judgmental sampling. There was the marketing manager who submitted receipts for a new wardrobe and a whole set of Tupperware® reported as travel expenses related to a sales meeting he was in charge of planning. And yes, his manager had signed his approval of the expense report. Even though the purchases were not large, we were curious as to why the employee believed this to be valid travel expense (motives related to small issues sometimes indicate larger problems). Rather than bypassing this, we opted to review the spending with the employee. We got directly to the issue, showed him his expense report, and asked if he had submitted it. He responded that he had. We asked him if it was accurate as we were reviewing a group of expense reports. He stated that it was. Then we pulled out the receipts that he had attached and asked if they were his. He stated that they were. Then we called attention to while his expense report stated that the spending was for travel that the receipts were for other types of spending which appeared to be personal. The employee proceeded to explain that the spending was indeed for legitimate business expenses because he had established a dress code for the upcoming sales meeting which required everyone to wear black slacks and polo shirts. With a straight face, he went on to say that he had lost weight and no longer owned the self-required clothing and had to purchase proper attire to comply with his own rule! We had to bite our tongues not to lose it right then and there. So we proceeded to call his attention to the entire set of plastic food storage containers. Amazingly, he had an answer for that as well. This spending he had recorded as miscellaneous travel because he said his team was working late hours in preparation for the meeting and he had to bring in food from home to keep the team fed and happy and he did not have anything at home to use to carry it so, he bought the storage containers. We asked him why he recorded it as travel and he replied that was the only way he knew to be reimbursed. We explained that neither expenditure was acceptable as travel and not reimbursable by the company and that we would be back with him with the company’s intended actions. Then we met with the supervisor, who admitted that he never looked at the supporting receipts submitted for expense reports of those in his charge. Further, he assumed that his employees only would submit legitimate and authorized expenses. We presented our findings to Human Resources (HR) and General Counsel (GC) who jointly opted for the employee to reimburse the company for the personal expenses and a reprimand for the supervising manager, a well-respected member of sales management.

Over the years, I’ve seen other occasions, including a member of sales management entertaining customers and recording as meals; an evening of alcohol at a strip club in Mexico; a VP providing personal holiday gifts to various members of his organization hidden in travel expenses; and salesmen dressing up their leased company cars with trucks with “farkles” like custom steps, caps, wheels, and bed liner. The sad part about the thousands of dollars spent on unauthorized vehicle add-ons, besides management’s tacit approval and hiding these on expenses as “travel”, is that these vehicle add-ons technically violate the company’s vehicle lease agreement.

Each of these occurrences was handled differently by HR & GC. While we were not asked to delve beyond interviewing the manager who thought it an acceptable practice, the Mexico affair resulted in his termination. The VP was required to reimburse the company. The sales team vehicle infractions resulted in re-education.

We also uncovered a plant level employee structuring travel to extend company travel and placing him at a casino for evenings of gambling with the company picking up the tab for the extended stay. This employee lost his job. Contrast this with a senior leader identified as falsifying airline flight options to obtain approval for upgrades which would not otherwise be approved resulting in thousands of dollars in upgrades. The employee was “counseled”. Or perhaps the entrepreneurial approach at one subsidiary of registering their admin as a “travel agent” and booking their own flights through this “agency” (in violation of our travel policy) to obtain discount rates, but keeping the sales incentives for their personal benefit. That one had us really shaking our heads for their “creative” approach to securing discount travel, and while we admired their intent and ingenious approach to thriftiness, we really couldn’t permit the fraud to continue. C-Suite members’ personal expenses continue to be periodically identified as company expenses and remedied by recording them as compensation. Can you say “catch me if you can”?

While the actions of the GC and HR in each of these situations may have been appropriate for the given facts and circumstances, the perception is one of inconsistency and tolerance which encourages continued abuse and opens the door to challenges to disciplinary actions as unfair or even discriminatory. Deception and entitlement can become pervasive, particularly if the company has a policy of not publishing, even in general terms, internal “sentencing guidelines” for workplace misconduct. Our job is hard enough as it is, constantly working against the tide of perceived bias and favoritism. Whether the C-Suite participates or not, perceived inconsistencies establish a “tone at the top,” setting precedents that challenge the legitimacy of the Integrity & Compliance function. All it takes is a firm commitment to Integrity by consistently demonstrating intolerance for actions that do not support company values to turn the tide in our favor. But then, we might be out of a job… hmm. Let us think about that a bit more…

Who are the Two Tough Cookies?

Tough Cookie 1 has spent the more than half of her 20+ legal career working in the Integrity and Compliance field, and has been the architect of award-winning and effective ethics and compliance programs at both publicly traded and privately held companies. Tough Cookie 2 is a Certified Internal Auditor and CPA who has faced ethical and compliance challenges in a variety of industries and geographies and recently led a global internal audit team. Their series “Tales from the Crypt: Tough Choices for Tough Cookies” are drawn largely from real life experiences on the front line of working in Integrity & Compliance, and personal details have been scrubbed to protect, well, you know, just about everyone…

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