Many years ago the since-retired head of a politically-oriented organization called me asking for advice about an auditor. An employee of theirs had stolen tens of thousands of dollars from them over a period of years, and their auditor never caught it so they felt it was time for a change. The man asked me about the auditor I was using, and if I knew who they voted for? I had no idea, I told him, and maybe the problem here is that you see an auditor’s ballot choice as a key qualification.
Accounting standards in the U.S. are far better than they are in much of the world. I’d hate to peer under the hood of a Chinese company like HNA Group or Anbang Insurance. Yet I’m also skeptical of the financial pronouncements that many companies make. When Jack Welch ran GE, the company would beat earnings estimates by a penny or two every. single. quarter. GE Capital, the financial arm generating around half the company’s revenue, was something of an accounting black box that pulled rabbits out of hats like that. Auditors usually disclaim liability for the contents of their audits, saying they’re just relying on what a company’s management tells them.
Understanding a business relies on the culture of the company, and protecting against fraud relies on financial controls (which a good auditor tests rigorously). Ultimately there may be signs that something is amiss but those usually seem apparent afterward. I was shocked 17 years ago when a well-known frequent flyer and moderator at FlyerTalk.com turned out to be an accounting sham.
My point in sharing this is that it doesn’t surprise me at all that Spirit Airlines says they were conned out of about a million dollars by two employees and a vendor working in cahoots. According to the airline,
- The vendor would charge up to 20 times the market price for a part
- The purchases were made by two employees
- The vendor would then kick back part of the overcharge to the employees
Specific details about Janjua’s business dealings with the airline Spirit were unclear from the court filings, but, according to the complaint, Janjua had created three companies in Florida – Airtran Industrie, Allstar Aviation, and Aero Parts Company – which had contracts with Spirit.
The airline alleged in its complaint that it overpaid about $857,139 for parts over several years.
Those contracts were awarded by a pair of Spirit employees who met Janjua at a trade show in about 2015, the airline said.
Remember those signs that should have been obvious? A Florida-based airline supplier called “Airtran Industrie,” really?
Blatant fraud and kickbacks go on all over, the question is where and how much? And what about more subtle forms of influence, such as vendors who pay for lavish dinners or that give nice gifts at the holidays? These aren’t explicit quid pro quo offerings, but they’re done precisely because the bet is they’ll influence an employee to make a decision they wouldn’t otherwise make.