Audit Nightmares!

I have spent my life in Financial Management.  My career spanned more than two decades, and covered experience from lowly bank teller, through corporate controller, a Director and head of Venture Investment for a  multi-billion dollar public corporation, and finally as the chief executive of my own Venture Investment company.  It was my privilege to have taken years of advanced financial courses and successfully held multiple professional licenses.  Friends are always surprised to find out the variety of positions I have held, and the prestigious list of employer companies.  But, they are really shocked to hear the inside stories of my investment management audits and nightmares.  The stories are endless, and I will share just a few of the stories with you.

Internal Revenue Audits which yield millions of dollars in additional taxes.

I served on a large corporate field audit in Chicago, Illinois years ago.  The company was an international food giant, with very glamorous corporate offices.  When I arrived to start my work.  I was shown to the top floor of the building, and through the corporate board room with the longest table in the world.  Past that glass encircled room, I went into the executive suites where out of town guests would be housed for the week of indoctrination and training.  Later I would learn that this location was selected to isolate me, so that I would not have access to the general populous and general company information.  I enjoyed the privilege of visiting the “Think Tank” creative room which was modeled after a submarine and was complete with a suede covered round waterbed, indirect lighting, soft mood music, and a small writing room to the side.  When I entered the room, it was sealed shut and a red light went on outside to indicate busy and occupied. 

And the everlasting audit memory came when I accumulated all the tax information, and all the international tax reports provided.  My tasks was to pull one line item from each document that had a similar tax category.  Bottom line came when we realized that domestic U.S. profits were shifted to international operations and reported offshore thus avoiding U.S. domestic tax treatment which was not cumulated but reported separately.  In the final analysis, millions of dollars in new taxes were collected.

Lunch with the Treasurer and a bribe

While on another Internal Revenue Service field audit, I wandered through the company.  Since I found no one in authority who knew who I was, I asked several people in the coffee room to show me where the books were.  One nice person brought me a couple of ledgers. However, they seemed rather small for such a big corporation.  So, I got up and walked through another couple of offices, and again asked where the books were.  A nice young lady told me that the books were in a cabinet behind where I was standing.  So, I opened the cabinet and helped myself.  I took everything I saw back to my work station.

Later that morning, an executive came in and offered to take me to lunch.  At lunch that nice executive offered me a bribe.  I came to realize that I had accumulated two separate and distinctively different sets of books for the same corporate operations. This revelation stunned me. 

Then my Regional Audit Manager demanded I report to the home office.  I trembled and feared my job was gone.  When escorted into his office, I felt attacked and grilled about the situation.  Questions were harsh and pointed, virtually accusing me of something negative.  Suddenly, my face went red, and as I let go of every four letter word I could think of, I slammed his door and stomped down the hall.  He ran after me, laughing and apologizing.  Then I was told that I was being tested to determine whether I had self confidence enough to make a career in dealing with difficult situations, such as this one. 

My career  in financial management and audit continued to immerse me in similar situations, giving me a real opportunity to comprehend just how valuable good business principles and ethics are.  Other such horrors include:

An Executive was stalling an early stage company in desperate need of funding, and at the same moment engaged a third party to woo the delicate startup just long enough for them to run out of money.  Consequently, the acquisition was had at a much cheaper multiple.

• When presenting a list of investment proposals for funding, I became puzzled that the worst opportunity was funded in lieu of other more promising ones.  When I asked why, I was told the sponsor needed to be encouraged even if he presented a bad opportunity.
   
• An incubator vying for a spin out made some pressing demands and unrealistic assertions.  Upon investigation I found that the individual was a scam artist with multiple names and multiple corporations.  He went to jail. 

The stories are shocking.  Good business professionals must ask the question, “How much is a business or transaction worth, and how much is your business reputation worth when you are tempted to put everything on the line and take that brave risk?  Just how much would you pay for the business and to get the deal done?”  When there are mysteries of valuation and deal terms, it is time to put the brakes on and slow the pace.  Take a little extra time to do a proper due diligence, and if necessary, audit everything and everybody!

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