Sunday, January 24, 2010

Unethical Boss Behavior

Everyone is talking about the embezzlement that occurred at Koss Corp. If you are not familiar with the story JS Online reports:

Sue Sachdeva allegedly misappropriated funds to the tune of $31 million while working as Vice president of finance at Koss Corp., a Milwaukee maker of headphones.

Sachdeva's alleged scheme which goes back to at least 2004 came to light in December when American Express notified Michael J. Koss, chief executive officer at Koss, that money was being transferred from Koss accounts to pay for Sachdeva's luxury shopping bills.

According to her indictment:

Sachdeva had fraudulently authorized transfers from Koss accounts to pay her American Express bills and also transferred money from Koss accounts to fund cashier's checks that she used to pay for her personal expenses. She also issued checks payable to petty cash, and then she told employees to cash the checks and get cash, which Sachdeva used for her personal expenses. Sachdeva also converted traveler's checks that Koss purchased for its employees who were traveling on Koss business for her own use and the use of others.

She concealed the fraud by making and directing others to make many fraudulent entries in Koss' books and records, to make it appear that her transfers were legitimate business expenses. Sachdeva concealed and directed others to conceal the fake entries from Koss management and its auditors.

In addition to firing Sachdeva, Koss also suspended without pay two members of the accounting staff who served under her pending further investigation.

The question I was asked this week was not, “Why would she steal 31million to just piddle it away on clothes and luxury items” or “How could Michael Koss have been so oblivious?” or “Why didn’t Grant Thornton discover the fraud?”

I was asked:

Why didn’t her subordinates turn her in?

Tracey Coenen says Sachdeva may have coerced or tricked them.

I think it could have been possible for Sachdeva to have tricked them for awhile; the assistants may have been inexperienced, didn’t have an adequate knowledge of accounting, or were inept, but I’m having a hard time believing that over time they didn’t have an inkling something was amiss. Come on, any semi-competent accountant would have thought at least once during the five year period, ISN’T IT ODD SHE NEVER HAS A RECEIPT, as they handed over cash from the petty cash box or wired company money to pay her personal credit card.

I think they had suspicions or maybe even knew exactly what she was doing, but choose to look the other way. She was well known and respected in the community and they may not have wanted to be the one to bring her down; I guess this could be considered coercion, but I also read the rumor the lady at Koss was selling designer clothes to Koss employees with the tag on them originally for hundreds of dollars for as little as $10 per item.

We may never know why they didn’t report Sachdeva, but we do know they owed it to their company and their career to tell someone what she was doing. Even if it is determined they were not her collaborators, I highly doubt they will retain their jobs at Koss and can guarantee they will have a difficult time finding future employment in Milwaukee.

It is never easy to report your boss. What is a subordinate to do if they witness suspicious boss behavior?

- The easiest thing to do would be to collaborate with your colleagues. You’ve heard the phrase "safety in numbers."

-Approach your boss’s boss or HR with solid evidence. We think Mr. Jones is stealing from the till doesn’t cut it. Present emails and written documentation. In the absence of documentation, keep a log of conversations pertaining to the unethical activity as evidence.

-Stick to the facts. Saying, “And besides we don’t like him,” is irrelevant.

-Pick the most significant unethical behavior when reporting. I have a colleague whose boss asked her to issue him $40,000 of unapproved payroll advances. She chose to report a $4 questionable parking ticket to his boss. Needless to say, she accomplished nothing except appearing petty and further deteriorating the already strained relationship she had with her boss

-Is there more to the story than you realize? Donna my company’s accounts payable clerk confronted a manager about a salesman she thought was eating donuts on the company every day. He’s not eating them he’s giving them to prospective customers.

-Don’t be afraid to suggest your own internal controls if you see a deficiency or ask your audit firm for assistance in implementing stricter controls. My colleague above should have said, “I’m sorry Mr. Jones, but I can’t issue the $40,000 advance without our owner’s approval.”

-If you are not comfortable talking to your boss’s boss you could alert your outside Accounting firm of abuse and have them deal with it. If you go this route, it is imperative you have your facts in order. You do not want to subject your company and boss to unnecessary scrutiny when the situation could have easily been resolved in house.

-And finally you may have to quit. I know an accountant whose boss (the owner of the company) asked her to underreport the company’s payroll taxes. My advice to her was you need to get out now.

How about you; have you ever reported unethical boss behavior?

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