The following article was prepared by Mike Taylor, C.P.M., for distribution to ISM affiliate newsletters.


Ethics and Fraud – February 2015

In my opinion.... Ethics violations and business fraud can create personal liability.

Obviously a person who steals money from a company should realize there is personal liability involved. But what about a person who’s job includes selecting contractors for disposal of hazardous materials or who authorizes money transfers. People who are just doing normal and day-to-day work sometimes don’t realize that their actions can create personal liability.

Suppose we authorize the transfer of hazardous waste for disposal to a company that has recently been in the news for EPA hazardous-material-disposal violations? Should we have had reason to question the transfer, asked for additional assurances, etc.? Do company policies and procedures direct us to avoid using vendors who are on the EPA violator list?

Suppose we write a purchase order for bolts from a company that has a reputation for providing counterfeit products. Do we have a reason to suspect these bolts might be fakes and did we get additional assurances before making the purchase? 

The net result of a failure to perform adequate due diligence could be an EPA citation, injury lawsuits, fines and penalties for our company.

In the event of a problem, employees will claim that they are just doing the job, following management direction and working in accordance with company policy. The theory is that the company is responsible for the actions of its employees.  As long as employees follow company policy and management direction, the company is at risk.  Thus the company could be found guilty as could senior managers and corporate officers.

EXCEPT… and UNLESS

The company decides to claim that the employee was “ROGUE”. That is the employee violated company procedures and acted contrary to management direction. It’s one of the few ways a corporation can protect itself in a lawsuit - by claiming no knowledge of, or responsibility for, the actions of an employee who “deliberately “caused the violation/error/loss/damage/destruction, etc.

Sound callous, doesn’t it. But it goes further. As employees we assume, a company lawyer on staff is there to defend the actions of all employees. In fact the company lawyer – is there to defend the company. Corporate directors and officers are often protected by a corporate officer indemnity clause – so the company will usually defend them. However, the rest of the employees us don’t get that same indemnification.

If employees "deliberately violate" company policy, the company lawyer could defend the company by claiming the employee was acting alone- rogue- recklessly, etc. In that case – the employee better “lawyer up”, to mount his own defense.

Some points to keep in mind:

  • Follow company procedures and management guidance. Particularly when it comes to ethics, fraud and compliance with laws and regulations.
  • If you suspect a problem, fraud, violation, etc. raise the issue to management and get specific approval or direction before proceeding.
  • Keep a record of the direction, approvals, guidance, etc.

There have been several high-profile cases recently that highlight this topic.

Read an older article on this same subject:
http://www.mltweb.com/tools/articles/compliance.htm 

Find more of my articles about fraud and ethics
http://www.bing.com/search?q=site%3Awww.mltweb.com%20fraud&qs=n&form=QBRE&pq=site%3Awww.mltweb.com%20fraud&sc=8-25&sp=-1&sk=&cvid=471f65dc37f34946b4ad4db0c5338bb6 

Mt


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