Tales From The Crypt - Rule 5: Red Eyes Can Definitely Affect Your Hearing

by Thomas Fox
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Tales from the CryptEd. Note-this week on am on a Spring Break college tour with my daughter. The Two Tough Cookies whom are penning the Tales From the Crypt Series have graciously agreed to contribute a week’s worth of workplace Tales from their crypts so help illustrate some key compliance and ethics concepts. Today they look at red eyes and how they affect listening…

This Tale from our Crypt underscores the importance of a good night’s sleep before making financial decisions. International travel is tiring.  It’s “hurry up and wait” in airports.  It’s packed airline cabins with strangers falling asleep and practically drooling on your shoulder.  It’s 24 hours in the same clothes.  It’s sleep deprivation in the extreme.  Dealing with other cultures, languages, and heavily accented, local-flavored English adds to the challenge.  In spite of all of this, you are expected to “buck up” and operate like an Indy race car with your brain cells running on all cylinders upon your arrival after taking a “red eye” flight overseas.

That was my condition when I found myself in a meeting where I wasn’t sure if it was the travel or something else happening when the conversation appeared to have a double meaning that I couldn’t follow.  I surveyed the room.  I had been here before.  I knew the people.  I was comfortable with and always entertained by our cultural differences.  But something was different this time.  A few fellow Americans had made this trip as well.  I examined their faces and body language.  All seemed struggling with the time difference and exhibited a noticeable gap in attention to the discussion at hand.

The group was discussing a matter of accounting for a transaction that never materialized and whether a liability remained or even ever existed.  Management maintained that the liability existed.  The accountants, given that years had passed, maintained that perhaps there was no longer, if ever, a liability.  How unusual, I thought.  Usually the concern is for unrecorded liabilities, which tend to boost bottom lines.

Meeting privately with the accountant after the meeting, I asked whether there was something left unsaid in meeting earlier in the day.  As I delicately attempted to get to the truth, the local accountant quite openly stated that, “of course, it’s a bribe!”  She was not aware of the specifics other than management had no support for the liability and that it had remained on the books for several years with her same questions meeting the same response…”we have a liability” with no evidence provided.

In some cultures, bribery is common and accepted and open discussion among trusted associates occurs.  In other cultures, wild allegations without facts are common.  I was in one of those cultures (but still unsure which…).  Good news!  I was considered a trusted associate.  Bad news!  I had to take action and get to the truth.  I quickly set up meetings several members of the management team and staff.  I asked for old accounting records.  The staff provided the records but they had not been given support for the transactions.  Management explained that they had a business relationship with a commercial customer (not government – phew!) and a third party.  The customer bought our products; the third party provided “services.”

As I worked through a series of several managers, all very helpful, I pieced together a rather unique kickback scheme placing us as the middleman.  The scheme worked as follows:  The customer (a local Japanese subsidiary) seeks to buy your product but tells you that his company will need help in using your product, so the customer will be hiring a consultant (himself).  Two invoices will need to be created to make this work – The first  from your company for the goods AND consulting services to the customer, the second from the consultant (the customer) for the consulting services (again) back to you, creating an accounting “liability” that can only be reconciled once the invoice from the consultant is issued for payment.   But the “consultant” forgets to invoice your company and management is afraid that he will eventually expose the whole deal, so the liability keeps getting carried forward, since the moneys have been paid, but the “services” never rendered…

As I had suspected, when I returned to the States with the story and the facts, one hi-level fellow American colleague who had been in the room was amazed that I had picked up on it, while everyone else had missed the irregularity.  They were equally amazed that their local leadership did not see this as inappropriate business practice, notwithstanding full knowledge that it amounted to commercial bribery, and the repeated training and communications our foreign executives had received about our dedication to thwart corruption in our business dealings.

End result?  After internal discussions, it was decided to replace the local leadership who had perpetuated the fraud, and the accounting records were corrected to remove the liability.  Did the “consultant” ever ask payment for his services?  Not that I know. What I learned? Nothing can substitute for having a cultural “baseline” and a good flight’s sleep.

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. Our 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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Thomas Fox
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