The sales team were misusing their travel privilegs

The sales people travelled a lot. The sales manager signed their expenses. I was supposed the sign the manager’s expenses. Our accountant comes in once a month to do the books. Last month he expressed his concern to me about the rising costs of the sales force. We now had three people plus the manager.

I began to look over their expense claims and noticed they were staying in expensive hotels, bought very expensive meals and drinks, and stayed overnight at places where they could easily drive home. When I questioned the manger, he said these were all legitimate expenses and it cost a lot to entertain customers. I suggested we establish an expense policy. At first he resisted but then agreed. The next month I checked and there was no real change in behavior.  I told the manager he needed to act now.

The next thing I learned through a friend was that the sales manager was seen in a hotel with a woman who wasn’t his wife in city X. I checked his expenses because he was supposed to be in city Y. There was a receipt from a hotel in city X but when I called the hotel, there was no record of his stay.

I hate confrontation, but met him the next morning. He denied everything and got really upset with me. He got very angry but couldn’t explain the situation. I told him we were going to audit all of the sales team’s expense for the past year. He got up, told me he quit, and left the building.

 

Transparency audit theft expense reports trust employees corruption 

Our Delaware registration makes us liable for far more even though we have not US operations at this time

Though my business was based in in Kenya, we had registered a Delaware C corporation in the US. Our registered address was our lawyer’s address. One day, the lawyer contacted me and told me two things: I hadn’t paid the Delaware franchise tax for two years so in addition to fines, the company would be closed; and the freight forwarder we used was being investigated under the Foreign Corruption Act, our company was one of the accounts being investigated.

I was shocked. We didn’t have any income in the US and the demands from Delaware were two years old. How could I be liable? This was the first I was hearing of them. Second, it’s almost impossible to get things done in Kenya without minor bribes; I’m not sure how anyone does any business without some infringement. Could they demand my records in Kenya? If I didn’t have the US company, would any of this have happened? Our lawyers set everything up and received all correspondence – are they liable?

The increased transportation costs ended up being due to corruption

The company was now 5 years old and sales are over $10M. We employ 45 people and are growing in double digits. We have had very little staff turnover and most of the employees have become shareholders. We have been using more subcontractors to get work done. We always have competitive bids especially as we are located in a relatively small city.

My accountant came to me and said that she was concerned that transport costs were increasing to an unacceptable level. It looked like next year would see a 15% increase. She also said she talked to friends in other companies and they weren’t seeing the same cost increases. She suspected that all our bidders were operating in concert to raise prices. We did a lot of work and found out she was right, they were taking turns winning but the price always went up.

We talked with our operations manager and he said he always chose the low bid. We decided to talk to one of the haulers. What he told us was hard to believe. He said

there was a bidding ring but that it was organized by our operations manager. He was taking a 5% kickback on any bid. The hauler in question had refused to pay and was therefore cut out.

After much debate we called the police. Their investigation showed that our manager was corrupt, that his brother was involved, and that this had been going on for at least three years.

We still have no idea how all that stock went missing

At the end of every quarter we did a formal stock count. When we were a real startup, we were always able to reconcile the stock and find it. As we grew, there were some discrepancies but nothing major. The differences were so small that we simply wrote them off.

Last quarter, the first stock count showed that more than 15% of the stock was missing. We counted again and found the same thing. We looked all over the warehouse and couldn’t find it. We now had six people working in the warehouse but they all said they didn’t know where the stock was.

We examined all the invoices and delivery notes and found that they hadn’t been reconciled for over a year. The accountants used the invoices to create the accounts and value the stock. The delivery notes were in piles in the warehouse office. Upon closer investigation it emerged there were no delivery notes for a number of high value items. We called the supplier and they said they were delivered. They provided signed notes to show when they were delivered. All were signed by the same warehouse operator.

When we asked him, he said he didn’t know anything about missing stock. There was nothing else we could do as there was no hard evidence of fraud. We tightened our controls and reconciled all the paper work. All was fine at the next stock count. To this day we don’t know what happened.


Our new admin assistant was paying invoices to a fake company

During the first three years of operation, I signed every check and reviewed every bill. The volume increased beyond what I could handle so we hired a full-time administrative assistant. She was a friend of one of our employees and came from a large company located in the city. I was so glad to get rid of this task.

We got our accounts within 10 days of the end of the month. Everything looked OK. One day I was in our bank and ran into the local bank manager who asked how things were going. I told him things were good and we were profitable and growing. I told him we had a new admin assistant who had come from XYZ company. He asked her name and when I told him, he was very concerned.

He asked if we had asked for references. I told him we had and he advised that I start looking at all the invoices and making sure I knew how we were paying. I wasn’t sure why he said this, but it sounded like good advice with no downside.

I spoke to the admin assistant when I got back from the bank and asked to see the invoices from the last month. Right away, I noticed several new names and that one new supplier had sent in four invoices that month. I got suspicious when I asked our operations people about the company and they had never heard of it.

When I went to the admin assistant, she said she just paid the bills managers signed. I took three invoices to the responsible managers. They knew nothing about them. When I confronted the admin assistant, she denied anything was wrong. I called phone number on the invoice and it went to voicemail. The voice on the message was the admin assistant’s.

Should I pay the $500 bribe for the permit?

He said I’d have to give him $500 to get the permit. I didn’t know what to do because we couldn’t open without the permit. I asked everyone for advice. My parents said to pay him – this is how business was done. My sister said it was wrong to pay him. Our lawyers said this was normal, but they couldn’t advise us on this. Finally, I just paid so we could open up.

Even after we did an audit and installed security cameras, we couldn't figure out why stock was missing

Over the past few months we have been running out of stock of certain components. This held up production and cost us a great deal of money. No one seemed to know why this was happening so we had an audit.

What we found was shocking. We were running out of stock because someone was stealing the key components. The invoices showed they were delivered, the internal stock systems said they were on the shelves, but when went to the shelves, they weren’t there. There were only two people in the warehouse. We didn’t know what to do because we couldn’t accuse someone without evidence.

We installed security cameras but didn’t see anything suspicious. We were still missing stock- in fact we lost over $10k of components. We couldn’t figure out what was going on so we finally called the police. They sent someone from the fraud squad who looked at all the records. She said nothing was stolen. The fact was it never arrived at the factory. The invoices were false and one of the warehouse men, who was in on the fraud, recorded them as real and then entered them into the system.

The warehouse man was arrested as was the sales rep at the supplier. It turns out they were cousins and had done this at other companies.

How do we account for bribes to the customs agent?

We have to bribe the customs agent every time we ship something out of the country. How do we report this in our accounts? Does this go into the cost of goods?

Foreign Corrupt Practices Act affects US registered businesses

I was doing business in Nigeria and incorporated my company in Delaware. I was then told that certain normal business practices in Nigeria are considered corruption and would put me in violation of US law.

Read more about the Foreign Corrupt Practices Act

Corruption: He said if I gave him $150, he would let me go

All the raw materials for my company come from abroad. We collect them ourselves after they clear customs. Yesterday, I went to make the normal pick up and had all the documentation on hand. A customs agent I don’t know started asking me questions and wanted to open some crates. This has never happened before.

He told me he couldn’t release the goods because of issues with the “paperwork.” I asked what I needed to do and he told me to start again. This would take weeks and we would run out of materials. I asked if there was a way to amend the existing paperwork. He said no, but that if I gave him $150, he could let me go.

I didn’t know what to do. Was this a trick to catch me offering a bribe? Or was he telling the truth and somehow we had messed up the paperwork this time?