Conduct of Financial Managers

Would you sign the company's financial statements knowing that they are inaccurate? It's every manager's nightmare: someone asks them to fake it to make the financials look better. Keep your integrity, or keep your job? Although painful, they must make a choice. Will they get fired if they go against their boss? If they cooperate reluctantly, will they lose their reputation, or worse?

Any longtime manager can tell a bunch of stories like that, and the more companies he's worked for, the more likely he's going to encounter unpleasant or job-threatening situations. In many cases, they are faced with an ingrained "unspoken rule" that seems to have no other way but to accept it calmly.

A manager said he had been involved in uncovering unethical behavior at both companies. "I was supported in most incidents," he said, "and at one point I was supported in public, but was told to leave in private." Walked into a meeting discussing business ethics only to find "a guy I fired once was talking."

"Perhaps there isn't a CFO (Chief Financial Officer) who hasn't been at some point in his career Having faced this kind of pressure," says Joseph Harwell, CFO of one firm, "the way a CFO responds to this pressure is a reflection of his personality, his conduct and his ethics."

Tatum Partners' CFO and partner Mark Zorko hold the same view: "When a CFO encounters a fraud problem, it is the moment when he needs to insist on the truth. It is his responsibility to insist on the right way. If someone asks the CFO to complicit or turn a blind eye, he Put your resignation letter in your pocket and go to persuade management to change the business, not the accounts. Jobs can be lost, but reputations are lost."

Here are a few true stories. Most of the financial managers in these stories have been pressured into hiding, cheating, or just being deaf; knowing how they stuck to their principles would benefit us immensely.

Integrity is more important than job

I worked for a small public company in the education industry with a very assertive CEO and a majority of his own board. His senior management is also a bunch of "followers" who have almost never challenged his authority. No decision is made based on the company's financial health, but the CEO is in charge -- one-sided decisions are inevitable. It is said that after being involved in many of these decisions, my predecessor resigned in a fit of rage.

No one knows corporate affairs as well as I do, so I've accepted promotions from finance manager to CFO, and I think I'll be able to stand my ground when necessary. Having seen the damage this management style has done to the company, I feel that the board should be told the whole truth when I think several decisions in the making are bad for the company. I decided then that I had to stand up and bring the situation to the attention of those who had the power to correct it.

I tried to convey the truth (by phone and email) to a board member, but I underestimated the power of that old network, and the CEO quickly learned that I was against him. Since then, I've been left out of the infosphere.

When I learned that the company violated the rules and used government funds for other purposes, I took a different stance. Since then, we've "break up" because my morality is a stumbling block for them. They have struggled for a few more months since then, eventually filing for bankruptcy. The company was sold off, creditors suffered heavy losses, and shareholders lost everything.

---Debra Johnson, who later opened his own company.

Inspiration Don't let career development take precedence over your ethics. Even if you lose your job, stick to your principles. There are gains and losses: I stuck to my principles, but I lost my job and I never regret it. Personally, I'm glad I chose Noble, although it also cost me a large severance package.

Gaining Ally Support

I am a General Auditor (GA) working for a multinational company in the hotel management industry with an annual turnover of $5 billion to $10 billion. My division operates annually The amount is also $1 billion. I found that lower-level managers systematically deducted the wages of lower-level employees. The deductions accounted for 20% of branch employees, about 40,000 people, and the deduction rate was 20% every month. In fact, after deducting health insurance, many people's wages become negative, and employees have to pay the company to make up for health insurance premiums. When the trick was discovered, it had been in place for several years.

The purpose of this practice is to cover losses and improve performance. The employees didn't complain, and because of their generous tips as waitresses or waiters, they didn't care why their already meager wages were shrinking. They may not know that the compensation of upper and lower-level business managers is linked to the level of profitability and operating income.

But the audit department and I took notice and did a field investigation to substantiate the issue. When this incident was brought up to branch management, they kept reassuring me that it was an isolated incident. After the evidence was conclusive, I negotiated with the management again, and this time they said that there was a reason for the incident, such as the early departure of employees, etc., but still could not justify it.

In fact, two payroll systems exist at the same time. Lower-level employees only pay attention to timecard records, while payroll is generated in another system, giving local managers the opportunity to make changes to previous records.

Management at the CEO level, CFO level, and division presidents and myself denied it, and bosses questioned the sanity and loyalty of our auditors. I reported the matter to the CFO and believed I was going to lose my job.

But I'm reluctant to stop there, I realize that this matter has the potential to lead to a major lawsuit, and at a guilty verdict, likely triple damages, for a total of more than $100 million. I first told my local corporate lawyer about this discovery, and after a month with little progress, I told an outside legal counsel. Then it got to the parent company, where I made connections with executives at the corporate level. I met with the parent company's CFO, the lead attorney, and finally the board of directors. Finally, we got the attention of company management and division managers to correct the mistake.

I have worked with the relevant federal government to establish an on-site control process to ensure that remedial measures are implemented after the fact, so that if employees have been unfairly deducted in the past, they will be repaid accordingly. Plus, the punch card machine was removed from the wall and replaced with a payroll system.

I think my success is largely due to finding allies in the parent company management, including people who can report directly to the company's accounting director and CFO. The end result is satisfactory. My career was thriving and I moved three times in 39 months. I kept getting promotions up to the company's chief auditor.

---Donald Billing Jr., now owns his own financial consulting firm.

Implications To overcome strong resistance from immediate supervisors, having subordinate support and good relationships with senior leaders play a vital role.

Keep the relevant evidence

As the CFO of a public company, I am used to arguing with the CEO every quarter over revenue numbers. He needs to hit his revenue metrics, and I want the numbers to be true and accurate. I have a good relationship with my CEO and these conflicts are only part of our working relationship.

Towards the end of a long quarter, the CEO gets busy with the business, running around with the VP of sales. This in itself was not unusual, but by the end of the season, three large orders were suddenly placed on my desk, all without my signature, and each order was confirmed without the signature of the CFO or accounting executive, and then In addition, it is the off-season now, so the source of these orders is worth investigating.

My CEO was vague about the details, but insisted that every order was valid and should be booked this quarter. I did further investigation and found that there are many doubts about each order. No order corresponds to a real transaction.

I immediately informed the CEO that none of these orders could be recognized as revenue for the current quarter, and I'm afraid not for future quarters. He vigorously defended the validity of every deal and countered every reason I made; so did the VP of sales. I found myself in an awkward position by not trusting any of them.

I told my colleague in charge of audit that I didn't know what to do with the CEO's several questionable orders. We have decided to issue an Accounts Receivable Confirmation for each order. Through emails and conversations with employees, the customers involved in these transactions did not intend to pay in the first place. These orders not only do not constitute effective income, but are simply false orders.

But surprisingly, every A/R acknowledgment was signed back, indicating that every order would be paid accordingly. Those customers have spoken to the CEO or VP of sales and agreed to sign off. So, despite my growing suspicions, there is still no hard evidence.

Then a large shipment came to our dock, and the shipper was one of the customers in the previous question. Those products we have not ordered, are useless to us, and do not have corresponding documentation. I notified the shipping company to send them back. This purchase has never gone through our purchase requisition process. The other customer in question sent a replacement order on his own initiative, with a completely different product than the original order, but with the same total amount.

I repeatedly provided the CEO with the new information and explained why those orders were not included in revenue, while tactfully stating my doubts about the authenticity of those orders. I genuinely wish he had a decent finish, but he continued to vigorously defend those deals. I had hoped at first that his stubbornness was just ignorance, but now I understand that he made up these orders in order to meet his operating income targets.

My audit colleague and I have discussed this matter many times, but he has rarely commented. Obviously he understands that the problem is at the top, but he doesn't want to get involved. He suggested that I consult with the board.

And I called the company lawyer to tell what happened. He immediately paid attention and suggested that I contact the board. This is a bit tricky, because all but one of the directors are chosen by the CEO and are his good friends. I called the real independent director and he was furious and wanted to take action, and we consulted with corporate lawyers together. So the lawyer met with all the key players in the incident (the CEO, VP of sales, CFO, and head of accounting), learned what happened to determine if there was any fraud, and reported it to the board.

The attorney reported the findings to the board, which determined that there was fraud between the CEO and the VP of sales. The independent director's request to remove the CEO was rejected. The CEO was given only a verbal warning, and the vice president of sales was eventually fired, but the incident was not cited as the reason for his dismissal.

After a few months I found a suitable opportunity and left the company. In retrospect, it strikes me that neither the CEO nor the board seemed to realize that I had saved the company and its shareholders from destruction and public investigation. In their eyes, I betrayed my CEO.

---CFO of a company

Revelation Carefully keep relevant documents and records of suspicious behavior, which will be very useful in the investigation and can refute the oral denial of the suspect.

Originally reprinted with permission from the November 2003 issue of Financial Executive Magazine (http://www.fei.org). Translated by Xu Jianshu.