by Peter Crosa
I’ve met many a vendor who has a story about buyers on the take. The topic comes up in almost all of my workshops and no ethics & compliance program would be complete without addressing the matter.
To be sure, embezzlement in industry doesn’t start with buyers. I once investigated a loss on behalf of a major corporation who insured the fidelity of the Board of Directors of a hybrid Miami health insurer. The hybrid group specialized in selling health insurance plans to small businesses at incredibly low rates. Unfortunately, one or some or all of the board members absconded with the $75 Million in premium they’d collected. One of the men, I later determined, was a Colombian logistics entrepreneur (think about it) whose nephew drove a Maserati to his exclusive Coconut Grove private prep school. When policyholder employees started submitting medical claims there were no funds available for the payment of claims.
I remember investigating a vendor who furnished a “VIP buyer lounge” in a special room above his warehouse. There were desks set-up for buyers to do their paper work, refrigerators loaded with snacks and adult beverages. Buyers were invited to come in any day of the week and encouraged to bring their files to work in privacy, away from the bustle of their office, ringing phones, and other distractions in order to get some paper work done. Of course, this was the vendor’s attempt to get a foot in the door on the next major purchase.
I remember listening to an interview of a senior buyer. He was recounting how someone he knew (I’m sure he was describing himself) was at a law firm Christmas party and walked in to use the men’s room. One of the attorney hosts walked in and stood at the adjacent urinal, pulled an envelope from his coat pocket and handed the buyer an envelope with eleven one hundred dollar bills. Three thoughts struck me. First, why eleven $100.00 bills? Why not ten or fifteen or twenty? Second, why at the urinal? Don’t even speak to me if I’m standing at a urinal. Third, I thought, wow attorneys do this too? So much for my naïve perception of attorneys being the pillars of our society.
Those events are generally a thing of the past. Today you’ll occasionally read headlines in the trade papers about a bailee who tipped off looters to a high value shipment or buyers who created phantom vendors, wrote checks in payment of merchandise, and converted the checks to cash for their own private use. In today’s environment of electronic paper trails, audits, and other covert detection methods, that method of embezzlement is INSANITY. But, admittedly it happens. And, almost always, investigators will develop a perpetrator with a tragic flaw such as a cocaine habit gone awry, a mistress, or a G-String Diva. No offense to strippers but I’ve investigated dozens of cases of embezzlement and there’s almost always a stripper driving the crime.
One more story involving a fairly big ticket item. A vendor financed a $40,000.00 addition to a buyer’s home; free of charge. The justification, according to the vendor, was “that buyer gave us over a million dollars in business last year.” Of course, upon further inquiry I learned that after the addition was built, the buyer was so nervous about continuing work with that vendor that the flow of business ceased. The moral of the story is: if you want to kill the goose that lays golden eggs, build an addition onto his house.
Now fast forward to 2011. Earlier this year I was speaking with a jewelry vendor about his efforts to increase his market share of business to retail buyers. At some point he tossed into the conversation a comment that stopped me in my tracks. The dialogue was something like this:
Vendor: Of course I know you’ve got to be ready to pay off the buyer.
PJC: Well, that was a thing of the past and doesn’t really happen anymore. It’s unlikely a buyer is going to hit you up for cash.
Before I could finish the “sh” in cash, he said “Oh no it does happen. We just lost an account because the buyers were pressuring us for cash kick-backs.”
I told him that it was dangerous to even do business with buyers who were so blatant about demanding cash for business and that there are other ways to influence buyers (while helping them stay on the high ground). Incidentally, I’m not outraged by a vendor thinking he has to pay off a buyer. After all, we do engage in promo and entertainment expense and to an enterprising vendor, there may be little difference in taking a client to dinner or giving him the equivalent cash or a gift certificate. But to the corporate entity, and generally speaking, society, there is a difference. The money to influence buyers can be directly linked to increased costs to their employer and ultimately, to the end consumer.
The bottom line here is that, whereas I hadn’t personally heard of any such activity for several years, I’m hearing it again and more often. Is it possible the economic crisis of recent times is having an effect on the supply chain throughout industries, industries that normally safeguard their integrity and reputation with the utmost care? This could mean we’re in a treacherous environment.
So, here’s some advice. Ethics & compliance operatives must insist on frequent review and adherence to established policies on vendor/buyer relationships. Frankly, it would not break my heart to see very rigid “zero tolerance” rules on vendor promo & entertainment. The following admonition is applicable to both buyer and vendor: If a vendor/ buyer pressures you or tries inappropriate influence, that person is a loose cannon and will eventually slip up and sabotage themselves just before throwing you under the bus.
Second, vendors may think that influencing buyers is a necessary reality in order to be competitive. Ethics & compliance operatives should be aware that inappropriate vendor influence is not always blatant and easy to spot. Here are some examples of promo & entertainment that may be overlooked by corporate ethics & compliance folks:
- Sponsoring a little league or softball sports team or other charitable cause
- Lunch or dinner
- Drinks, a vendor may rationalize, “how many times have I bought strangers a drink (and who cares),”
- A birthday or holiday card and gift to the buyer’s home
- Sports or concert tickets
- A complimentary visit to the vendor’s vacation home
Corporations that staff a “buyer or acquisitions” department need to be cautious about their rules and how compliance is verified and enforced. Compliance alone is not the end all. Ethics and Compliance must be promoted on a personal level. All ethics is personal. It stands with one person and can fall with one person.
Peter Crosa is a philosophizing private detective out of Tampa Bay, FL. He can be reached at firstname.lastname@example.org.