Compliance &Ethics - Society of Corporate Compliance and Ethics

Featureby Peter J. CrosaBuyers on the take»»Embezzlement or misappropriation isn’t limited to line employees. The E&C purview net should be cast from the lowest levelemployee to the executive board, and from stockroom to boardroom.»»Staff is more likely to be influenced by unscrupulous vendors while away from the office.»»No vendor should be considered incapable of inappropriate influence, from janitors to lawyers.»»Investigators frequently uncover an employee perpetrator who has a tragic character flaw that is germane to misappropriation.»»Cash kickbacks, entertainment, and other untraceable gifts are often subject to misappropriation.Compliance & Ethics Professional May/June 2012CrosaI’ve met many a vendor who has a storyabout buyers on the take. It frequentlyinvolves hearsay or what someone toldsomeone else. The topic comes up in almostall of my workshops and no ethics and complianceprogram would be complete withoutaddressing the matter.To be sure, embezzlement in industrydoesn’t start with buyers. I once investigateda loss on behalf of a major corporation thatinsured the fidelity of the board ofdirectors of a hybrid Miami healthinsurer. The hybrid group specializedin selling health insuranceplans to small businesses at incrediblylow rates. Unfortunately, one, orsome, or all of the board membersabsconded with the $75 million inpremiums they’d collected. One of the men, Ilater determined, was a Columbian logisticsentrepreneur (think about it) whose nephewdrove a Maserati to his exclusive CoconutGrove private prep school. When policyholderemployees started submitting medical claims,no funds were available for the payment ofclaims.I remember investigating a vendor whofurnished a “VIP buyer lounge” in a specialroom above his warehouse. Desks were set upfor buyers to do their paperwork, and refrigeratorswere loaded with snacks and adultbeverages. Buyers were invited to come in anyday of the week and encouraged to bring theirfiles to work in privacy, away from the bustle oftheir office, ringing phones, and other distractions,in order to get some paperwork done. Ofcourse, this was the vendor’s attempt to get afoot in the door on the next major purchase.I remember listening to an interview of asenior buyer. He was recounting how someonehe knew (I’m sure he was describing himself)was at a law firm Christmas party andwalked in to use the men’s room. One of theattorney hosts walked in and stood at the adjacenturinal, pulled an envelope from his coatpocket, and handed the buyer the envelopewith eleven $100 bills in it. Three thoughtsstruck me. First, why eleven $100 bills? Whynot ten or fifteen or twenty? Second, whyat the urinal? Don’t even speak to me if I’mstanding at a urinal. Third, I thought, wowattorneys do this too? So much for my naïveperception of attorneys as the pillars of oursociety.Those events are generally a thing of thepast. Today, you’ll occasionally read headlinesin the trade papers about a bailee who tippedoff looters to a high-value shipment or buyerswho created phantom vendors, wrote checksin payment of merchandise, and converted thechecks to cash for their own private use. But intoday’s environment of electronic paper trails,audits, and other covert detection methods,that method of embezzlement is insanity. But,30 www.corporatecompliance.org +1 952 933 4977 or 888 277 4977