Monday, January 25, 2010

Day 8 - Funny Business

          Simpson showed up this morning from Kentucky. He actually let me know he was coming, which is kind of unusual for him. Ron likes springing a big surprise. I think he secretly hopes that he will find someone doing something they shouldn’t if he catches them off guard. He’s here to go through the closing with me so he can help my replacement should the replacement turn out not to be a quick study. I imagine that Fritz also wants Ron to do a read on me to make sure I’m not going to throw them a knuckleball or a spitter. I’ve never done anything to suggest to them that they shouldn’t trust me, so I’m beginning to think that they think that they have done something so heinous to me that I will completely change character and launch a personal vendetta. They don’t have any idea how happy I am to be shed of them. I’m not going to say anything. I don’t want them to get the idea that they can take the severance away and I’d still stay happily gone. I may be trustworthy, but I’m not above taking advantage of what little leverage comes my way.
          Parts of this were confirmed when Ron called Fritz from my office to report in. “He seems okay,” he said to Fritz at one point in their conversation.
          “Fritz checking up on my attitude?” I asked when Ron hung up.
          “Yeah. He wanted me to take your temperature.”
          I thought of a rectal thermometer as soon as he said this, mostly because that image fits the new elevated esteem that I have for these bozos. I didn’t say anything about this of course. I was the very picture of maturity and judiciousness.
          “How’s he doing finding my replacement?” I asked.
          “I don’t know.”
          Ron seemed a little deflated to have to admit this. Ron likes to let you know that he is in the know, so it would follow that he’s not that happy with not being in the know. When he brightened suddenly and broke into a conspiratorial grin, I knew that he was about to share something with me that he shouldn’t in order to make up for not knowing how Fritz is fairing with my replacement.
          “I don’t think Fritz has gotten over the first guy turning him down,” he said.
          “Oh, really?”
          “Really. Do you know that the guy took another job for less money than we were offering?”
          “Oh, really? The guy said that?”
          “No, but his recruiter did…and do you know why?”
          “I can’t imagine.”
          “He said the guy talked to Fritz for an hour and a half in the interview, and Fritz never said one thing to convince him that this was a good place to work.”
          “He took less money because of that?”
          “Well according to the recruiter it wasn’t so much that Fritz couldn’t convince him. It was more like he didn’t even try.”
          “Why am I not surprised?” I asked.
          Ron nodded his head. I thought that if I could show Fritz a video of this conversation between Simpson and me, Simpson would be training his own replacement in pretty short order. This was a way more gratifying image for me than the rectal thermometer.
          The proximal cause of my getting fired was someone else’s marital infidelity. That’s how I read it. It’s rather more complicated than that, but that’s where it all began for me.
One fine night in July, Threasher, the corporate human resources director in Kentucky got a phone call from a woman who lives in Nebraska. She related that her common law husband worked for a maintenance and cleaning services company that had contracted with our company to clean our buildings and provide other maintenance and repair services at our facility in Omaha. She went on to say that this man had been stealing materials from our facilities and storing them in a warehouse leased for that purpose. She said that he had confided to her that he now had over $100,000 worth of our inventory stored there. Then, even more remarkably, she went on to say that the director of maintenance and facilities at the Omaha location had full knowledge of these alleged facts.
Threasher was curious as to why the woman had called him with these revelations. She told him that her common law husband, the alleged thief and ware-houser of stolen property, had confessed to her that he had a girlfriend who was now pregnant with his child. Incensed at this betrayal, she had decided to gain retribution by revealing his ill-gotten gain to the management of the company he had bilked. Why she chose Threasher in Kentucky rather than Bill in Omaha, and how she had got Threasher’s phone number remains a mystery to me, but these revelations were the beginning of the end, in quite short order, for the head of maintenance, and eventually, months later, for me.
Threasher called Bill. Bill called the maintenance guy. They met at the office in the dark of night, and Bill commenced an interrogation that, after a series of missteps, deceptions, lies, catchings-in-lies, and subsequent revelations, disclosed really only one pertinent fact.  The maintenance guy (let’s call him Larry) was in fact the owner of the company that had contracted with our company to clean the buildings—the company that employed the errant common law husband on whom the deceived common law wife had ostensibly blown the whistle. This of course represented a serious conflict of interest and was in fact strictly forbidden by company policy.
There was no admission at this time (nor would there ever be) of any thievery, or of the warehousing of stolen property, or of any knowledge of the same. Bill asked for and received the maintenance guy’s resignation, effective immediately. Gina, the local HR manager came in to prepare the necessary paperwork into the wee hours of the morning.
This is the state of affairs that confronted me the following morning. Bill caught me in the hallway and shepherded me into his office while I was on my way, lunch bag in hand, to mine. He laid out the whole sordid story from beginning to end. He wanted me to immediately launch a full scale accounting investigation into every transaction that had Larry’s fingerprints all the way back to his date of hire, which, thankfully, had not been but 8 months or so before. As it turned out, and unbeknownst to me at the time, this was like handing me a shovel and asking me to dig my own grave.
Now I have to say at this point that Larry’s conduct, his modus operandi, had ever been a source of suspicion for me. He spent money like it was water, and his guiding philosophy seemed to be it’s easier to ask forgiveness than it is to get permission. The problem was that Larry never had much trouble getting either—forgiveness or permission. It seemed to me that he was given pretty much a free hand to get our facilities up to snuff. There were certainly a lot of things that needed to be addressed, and Larry was no slacker when it came to getting things done.
In addition to several buildings that were in considerable disrepair and equipment that was constantly breaking down and causing stoppages in production, the company was also trying to implement a lean manufacturing initiative. They had earmarked a prodigious sum of money to upgrade facilities and to improve and rearrange machinery to eliminate waste—the main focus of a lean implementation. Larry worked hand in hand with the vice president of operations (let’s call him Juan) to make this happen.
Now besides suffering from years of more or less benign neglect our facilities had been built and structured to purpose on the cheap and in a piecemeal and haphazard fashion. The result was electrical and plumbing systems that were not up to code and did not support the volume of work they were being asked to perform. All this had to be fixed. It would have been a good idea to fix these things anyway, but in a lean environment, where downtime and wasted motion are mortal sins, these fixes became critical tasks.
Larry was in some respects the perfect guy to do this because he didn’t let anything get in his way. Unfortunately one of the things that he didn’t let get in his way was policy, especially policy as it relates to accountability along with its attendant paperwork. Larry bought into the lean concepts with all his heart. The guiding principal of lean is that everything you do has to be value added, and in Larry’s lean heart of darkness paperwork did not add value. Paperwork slowed you down. Paperwork was the enemy. He was not alone in thinking this.
Now when a person such as Larry goes to work in an organization that has robust controls in place and rigorous enforcement of well documented policies and procedures, the Larry person usually finds his natural creativity unnaturally stifled and he moves on to greener pastures in relatively short order. If on the other hand he finds himself in an environment where the policies are arcane and slipshod and only infrequently and arbitrarily enforced, then he is in his element and will flourish. This particular Larry had not only landed in the second such place, but had landed at a time when everything was being reinvented under the lean imprimatur. So long as Larry produced the results that management was looking for Larry flourished. When Larry overstepped his bounds, as he was likely to do on occasion, management tended to look the other way, excusing his excesses because they were seeing him transform our facilities into something approaching a lean showcase.
Larry’s style first became problematic for me when he started exceeding the budgets for the lean implementation and facilities consolidation. These budgets had been developed in considerable detail before Larry’s arrival on the scene, and were scheduled by me and monitored in total by corporate finance on a monthly basis. When Larry started exceeding the budgeted amounts, I started scheduling out his expenditures in detail—that is line by line—and analyzing the payment details to determine their appropriateness. I had some misgivings about the nature of some of the amounts, and felt that they were in fact misclassified, that they should not have been charged to the lean and consolidation budgets at all, but rather to operations. I distributed the schedules to Larry, Juan, Bill, Fritz, and Ron for review and comment. While we made numerous reclassification adjustments to correct these charges, no one ever questioned whether or not these expenditures had been properly authorized. In fact it appeared as though they had because they all had signed purchase orders attached and Larry and Juan provided succinct and plausible explanations as to what the purchases were for and why they were necessary.
When I questioned the amounts of some of the expenditures, $84,000 for instance to change out all the locks on the premises, I was shown valid purchase orders, signed authorizations, and told that the change had been mandated by OSHA and had to do with accessibility to closed rooms by the fire department in the event of a fire or other disaster.
When Larry’s conflict of interest problem came to light, I had to revisit all these analyses I had already performed. It wasn’t just Bill who wanted this either. By the time I got to my office after getting marching orders from Bill I found several hysterical e-mails from Fritz demanding a complete and immediate review of all transactions initiated by or involving Larry in any way—to include especially any that had to do with the janitorial and maintenance services company owned by Larry. I have to say that at this point I agreed with Fritz’ sense of urgency regarding said review, but it did occur to me that he must have talked to Bill and known that such a process was already being initiated so the hysteria to me seemed a little misplaced.
Curiously absent in the hysteria was any mention whatsoever of the alleged thefts of inventory and any urgency attached to locating the alleged warehouse. I should point out here that in fact no warehouse was ever found, nor was any credible proof that materials had gone missing in any systematic, recurring way, although we certainly didn’t know that this would be the case early in the investigations. It was eventually concluded that the aggrieved woman had made up a great deal of the story wholesale just to dip the errant and randy common law husband in the grease.
The result of the review was that all the transactions seemed normal and reasonable. The janitorial and maintenance services costs had actually decreased somewhat since Larry replaced the former contractor with the one surreptitiously owned by himself. In fact Larry had indicated to Bill in the process of coming clean that the reason he set up his own company was that he couldn’t find anyone else to do the work to his satisfaction at rates he found reasonable. He claimed that he would have preferred to do the work internally, but the current budgets and lean initiative had obviated the addition of any indirect personnel to our payroll. I don’t know how much of Larry’s explanation was true and how much was smoke blown to deflect the attention he was getting during Bill’s interrogation. What I do know is that the transactions I looked at, while they might not have been squeaky clean, at least supported Larry’s contention that he was just trying to save money. In my opinion the only serious problem was the alleged missing inventory, but no one else seemed to be concerned about this.
Several days later, I received notice that Ron Simpson was coming (on Fritz’ orders) to conduct his own review of Larry’s activities. I knew that this was going to be a huge pain for me, that a lot of work was going to be duplicated not just for me but for my staff as well. I don’t know why Fritz decided to do this. The only two possible reasons are the either he thought I was incompetent to conduct the review or he thought that I had colluded with Larry somehow to defraud the company. In any event to forestall having to do things twice I stopped my review in its tracks and awaited Ron’s arrival.
Ron stayed three days, made an extensive review of a large volume of transactions—most of them in the lean and plant consolidation categories I had already analyzed, scheduled and distributed to him, Fritz, and Bill. He found a few items that should, according to policy, have required an authorization for expenditure form (AFE) to be filled out and signed by management before being processed for payment. Instead these items had post-dated purchase orders attached.
The post dated purchase orders meant that my accounts payable clerks had pulled the invoice because it did not have sufficient documentation for payment, and routed it to purchasing for review and approval. Invoices submitted for payment must usually reference a purchase order as evidence that the purchase was properly authorized and a receiving document as evidence that the items invoiced have in fact been delivered to us. Payment is only made when the required documentation is either attached or matched in the system. In the normal course of business my clerks would not know without a lot of research that an authorization for expenditure (AFE) was also required. If they can match a PO and a receiver they pay the invoice. If they cannot match, they route the invoice to purchasing for resolution. If purchasing returns the invoice with a PO and notes some proof of delivery the invoice is then paid.
The trap in these few expenditures was an antique policy written in the days of an anal retentive corporate management. This policy required that an AFE be executed and signed by the president of the company in Kentucky for all non inventory expenditures in excess of $250. Holy crap! We’ve got annual revenues in excess of $110 million. Virtually every expenditure we make is over $250. This is the most burdensome and ridiculous policy I have ever seen or heard of. In the company I just came from line managers on the floor could authorize expenditures of up to $1,000 without having to get an approval. The vice president in charge of a division had authority to spend up to $10,000. A $250 spending limit would grind a company like ours to a halt. It would make a champion of lean enterprise blanch.   
We had actually discussed this policy at our company-wide controllers’ conference nearly a year previous to the Larry fiasco. We had agreed then that the spending limits were overly burdensome and needed to be revised upwards. No one did anything about it though. One of New Ron’s projects was supposed to have been rewriting the accounting policies and procedures manual. Unfortunately Fritz had changed direction and fired New Ron before he got around to doing this. I had no recourse at this point but to agree with Old Ron that there were indeed some expenditures initiated by Larry that were contradictory to policy.
When Ron finished his review he met with Bill and me to go over his findings. He indicated that while it appeared that Larry had deliberately undertaken to circumvent some of our controls, there was no evidence to suggest that he had done so in order to convert any company assets to his own benefit. That is Larry had not stolen or misappropriated any company funds, and his peccadilloes, to the extent they could be identified, appeared to be undertaken only so that Larry could avoid any additional paperwork. In other words there were no alarming transactions in our system indicating any serious problems or evidencing any malfeasance.
          Then Ron flew back to Kentucky and wrote a report that made it sound as if there was wholesale disregard for any and all accounting safeguards, policies and procedures at our company, and that under my watch it was nothing short of a miracle than the company had not been robbed, bilked, scammed, and purloined into insolvency. Did I already say holy crap!

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