Why Auditors Need to be Audited

It is deeply disturbing when those we rely upon to be watchdogs for the rest of us succumb to lying and corruption. It’s even worse when we need them to police our finances—something that too often seems arcane and impenetrable by the average person and requires the expertise only a trained professional can provide.

Wednesday,  the New York Times reported that accounting giant KPMG had fired six employees, including its head of audit practice in the U.S., for getting tipped off about audit inspections. This inappropriate warning gave the accountants time to polish the portion that they learned would be inspected until it was free of errors. According to an editorial in the New York Times, KPMG had failed at earlier inspections. Its 2014 deficiency rate was 54 percent and its 2015 rate was 38 percent. Perhaps the firm had reason to be afraid.  

The organization seems to have handled things properly. KPMG had been tipped off by a whistleblower and had engaged an outside law firm to investigate, then took firm and appropriate action—a series of events that I commend. However, good practices when dealing with a whistleblower doesn’t get KPMG off the hook.

The company has long been under scrutiny for giving the scandal-ridden Wells Fargo and the deeply troubled world governing body for soccer, FIFA, clean bills of health. Whenever I see a company’s employees act out in egregious ways, such as I described yesterday about United, or in my previous coverage of Wells Fargo, I have to wonder what is going on at the top and how bad things are for employees. I can’t state too strongly that people who are employed in psychologically healthy, safe and fair workplaces aren’t given to appalling behavior.

When the head of audits for the entire country is part of this conspiracy, I also have to wonder if he went rogue or if he was just passing on the unethical behaviors of his superiors—or of the industry in general. There have been warnings. Last year U.S. Sen. Elizabeth Warren (D-MA) sent a powerful letter to KPMG bluntly calling into question the quality of their audits of Wells Fargo. If our auditors aren’t minding the store, what are they up to?

In this disinformation era, we need solid accounting—both figurative and literal—to keep us on track. Numbers are in too many cases that only metric we have to measure performance in business. Auditors are supposed to be on the lookout for errors, not facilitating mendacity. It’s true at any time, but particularly now during the Trump administration that auditors need to be audited. Given the role they play in our capitalist system, not doing so could have dire consequences.

Photo credit: Reuters/Mike Blake

Where’s the Beef? DC Dumpster Fires Steal Focus from Tainted Meat

The endless reality television drama that is Washington is pushing news headlines alerting us of real danger down below the fold. Lost in the revelation-per-minute scandals recently was news of a major Brazilian federal police investigation into tainted and adulterated meat that was being exported by Brazil’s largest meat processors. While the United States gets only a small fraction of meat imports from Brazil this could have become a widespread human tragedy if it had gone unrecognized. Among the places that purchased this unsanitary product were schools and retail chains including Wal-Mart Stores, Inc.

When dishonest practices happen on such a large scale, I have to wonder what workplace conditions were like that made corruption—in this case bribing government officials to loosen regulations—possible. What was it about the culture of JBS (the world’s largest beef exporter) and BRF (the world’s largest poultry exporter) that would enable such behavior as mixing healthy meat with tainted product, chemicals and/or foreign matter? Clearly there was a culture of fear that kept insiders from revealing what they knew or sharing that information with a superior who would be motivated to stop the practices.

From my experience working with embattled companies, I find when this happens, no amount of classes, awareness seminars, pleas for employee communication or morale building makes any difference. Bad practices are built into this sort of culture and cannot be changed. The only way to save the company is to dismantle it and rebuild it into a culture that has transparency built in from the foundation.

Based on the reported decline in export revenues, it’s all too likely that not just the country’s reputation but the economy of Brazil has been severely damaged. I have to wonder if the beef industry will recover from this scandal.

This is all too reminiscent of the ongoing tragedy in Flint, MI or the banking debacles at Wells Fargo and TD Bank. Leaders need to wake up and realize that they must create a workplace culture that allows employees to report devious and dangerous practices without fear of reprisal. It’s only by enabling workers to resist bad practices that C-suite executives can sleep soundly at night.

Photo credit: Reuters

The Dangers of Start-Up Culture

The idea of taking a new job at a fresh Silicon Valley start-up can be appealing for many people, especially to the generation that’s just now entering the work force. However, horror stories, like the one provided by WrkRiot, urge me to encourage everyone looking to make it big with a start-up to do their due diligence before signing up. WrkRiot, as The New York Times reports, is a drastic example of a start-up gone wrong. The company aimed to be the new Indeed.com, but ended up losing enough money that the business had to borrow money from employees to provide paychecks. While WrkRiot provides a pretty severe example of Silicon Valley failure, it’s my understanding that this kind of failure is not entirely uncommon in start-up culture. Just like with any organization, it’s important to make sure you do your homework before joining a company, even one that’s quite new, to make sure you’re not stepping into a rat’s nest. 

Image: Penny Kim, a former WrkRiot employee who helped to bring many of the company's issues to light. Credit: Anthony Chiang via NYT

Greed Driving a Culture of Corruption at Wells Fargo

I’ve commented on Wells Fargo in the past. Consequently, I’m not completely surprised by the new information on the fraudulent accounts opened at Wells Fargo. A disturbing trend I’ve noticed in the financial sector is a tendency for companies to push their employees towards unrealistic sales goals – oftentimes leading to some form of illegal activity. The fake accounts opened by bankers on their clients’ dime is a total breach of trust – but I don’t lay the blame solely at the feet of the employees who engaged in this behavior. The culture that encouraged this behavior is rooted in greed and disregard for their customers. Wells Fargo, more than any other of the ‘big banks,’ has been able to maintain a veneer of caring for customers after the financial crisis. However, it turns out that they aren’t any different than their peers in the banking industry – demanding so much of their employees, that many felt they had no choice but to cheat the system. You can get more information on this at The New York Times.

Image: Eric Thayer/Bloomberg via NYT

Board Corruption Impacting School Children

When children are involved in any organization, whether it’s a school or a nonprofit, they should always come first. However, according to this story from The New York Times, there seems to be so much neglect, greed and corruption at the board level of the Hershey Trust Company that the kids who attend the Milton Hershey School don’t have anyone to depend on. The school, founded by the chocolate tycoon in 1909 for underprivileged kids, is supposed to be run by the Hershey Trust Company; however, between bad business deals, overblown trustee salaries and breaches of general practices that seem designed to serve the board members over the children, this truly does seem like one of the greatest “nonprofit scandal[s] in the last 30 or 40 years,” as one critic states in the article. Sadly, corruption from the top-down is not too uncommon – however, when it comes to protecting children and making sure they get the education and resources they need, this case is particularly appalling.

Image: Children playing hockey on the grounds of the Milton Hershey School. Image Credit: Will Figg for NYT

Volkswagen, You're Not Fooling Anyone Anymore.

“The evidence paints the most detailed picture yet about how the deception unfolded and who was responsible.” Even though this will be sorted out in court, it seems that the evidence is indisputable: the highest levels of Volkswagen’s management were aware of the emissions scandal. There are even emails from board members begging for someone to “Come up with a story, please!” as law enforcement came closer and closer to discovering the truth. The board of VW should just come clean here – the longer they try to defend the indefensible, the more they put their organization at risk of financial bankruptcy. That should matter to them at least, considering that they are already morally bankrupt. You can read more about the new evidence in The New York Times.

Image: Maura Healey and Eric Schneiderman, the Massachusetts and New York Attorney Generals respectively, as they discuss the new lawsuits they're filing against Volkswagen, along with the state of Maryland. Credit: Bryan Thomas for NYT via NYT

Why Hasn't USA's VA Been Fixed Yet?

I agree with the sentiment of this article, that the laws surrounding the management of the US Department of Veterans Affairs should be reconsidered to make effective regulation a reality. However, I’m still wondering why employees who have clearly attempted to take advantage of the system aren’t fired outright. Why are the judges deciding these cases siding with clearly corrupt employees, who are out to help themselves more than veterans? It’s shameful, and I’m frankly surprised more Americans aren’t up in arms about what’s going on at the VA. Continue reading at The Wall Street Journal. 

Image: Bloomberg News via WSJ

Thoughts on Massey Energy's Massive Negligence

Massey CEO Don Blackenship

This report from 60 Minutes is infuriating, saddening and worth watching. The disaster in the Upper Big Branch coal mine in West Virginia, which claimed 29 lives, was entirely preventable. Forcing miners to work in conditions where the air is so thick with coal dust that they can’t see their own hands in front of their faces is one insult, but the reports of a culture built on falsifying safety records in the interest of profits adds insult to injury. The miners, who remain un-unionized, only have federal mine inspectors to turn to, but an environment of bullying and fear of retaliation prevented reports of the rampant safety violations in place at Massey Energy’s mines. The corporate culture of disrespect, greed and a blatant disregard for employee wellbeing is completely attributable to Massey Energy’s CEO, Don Blackenship, who can only be sentenced to one year in jail for his deadly and willful negligence. One victim’s family member called that a “perversion of justice,” and I think, if anything, that’s an understatement. Watch and read at CBS News.

Photo Credit: Don Blackenship from Getty Images