At a post-session dinner with a client, a company executive shared a story with me.
“Our outside auditors discovered an employee embezzling money from the company. Once accounting confirmed the auditor’s findings, we let her go and pursued legal action.”
The company won its legal case against the former employee: she received a jail sentence and was ordered to pay restitution.
Cases like these are important because when one reads the almost continuous stream of articles about fraud in public companies (Citigroup’s $590 million payment to settle a class-action lawsuit being a recent example), you can get the impression the system doesn’t work, is “gamed” against investors and fraud is rampant. For the most part, however, the system works. In this example, the firm’s outside auditor detected what turned out to an ingenious, clever embezzlement scheme, IT and internal personnel worked to build a case against the embezzler and the legal system came to the correct verdict.
Three key financial intelligence learnings come from stories like these. First: bad apples do exist and, in an open, capitalistic economic system, will always exist. Everyone involved with the company’s numbers needs to be vigilant. Second, as the Osmond Family taught us long ago: “one bad apple don’t spoil the whole bunch”: it’s critical to have checks and balances built into any system to uncover the “bad” apples. And, third, the vast majority of people and companies work hard to do the right thing every day for investors, employees and the general public.
The system certainly isn’t perfect, but it does work the majority of the time.