I was reminded recently that I had not written in awhile about one of my favorite topics, Management Fraud. Our focus here and in my book, The Business Zoo will concentrate primarily on those people who should know better, people who already make excellent money and who often believe they never did anything really wrong. This is called Management Fraud. Sometimes this can take on giant proportions like kickbacks from suppliers and sometimes it can seem almost like petty cash when it involves travel and entertainment expenses.

As is my practice with potential crimes, we will leave the company and person’s name out to protect their families any further embarrassment. We call this tale: Grooming a Senior Corporate Executive’s Expenses.

As individuals rise to the top of the senior corporate ranks, they get many benefits and privileges. Besides higher pay, bonuses, and stock options, they often are awarded private lunch club memberships, and in the old days, golf country clubs, company cars etc. But this is not enough for some people. For whatever reasons, a certain Senior Corporate Executive working with this company needed more. So the Executive started charging some personal expenses like hair stylists. To make matters worse, the same Executive spread over several expense reports, the cost of a holiday party at their home for their staff. That was against company policy as well. The sum total of all this was very minor compared to the Executive’s salary and bonus. What is also interesting is that the people who dream up and do things like this, are never someone you would expect even if you knew something about Management Fraud.

Expense accounts for senior executives at public companies would make exciting reading, if published in the Wall Street Journal. This actually happened to the, now imprisoned, former chairman of Tyco who charged the infamous thousands of dollars shower curtain. Sadly, senior executives’ expense accounts are often prone to these types of vulgarities. Why? Because for some the higher up in a firm they get, and the more they get, the more they actually believe they deserve.

Pushing your expenses seems like an easy way to get what you believe you deserve. Compounding the problem is this little understood fact: the expense reports for senior executives are reviewed and approved internally by other senior executives! Now some senior people actually do review each other’s expense reports as though they were important; others well, not so much. Sometimes very senior people like a Chairman or CEO, by necessity, have lower level executives review their reports. As CFO at one of my public companies, I reviewed and approved my boss’s expenses. But what should be common knowledge to the Executives at large public companies is that Internal Audit will review or spot check all the senior executives‘ expense reports. And every year or so someone gets caught. And usually for something stupid.

Our Senior Corporate Executive’s improper grooming and party expenses turned a spot check into a multi-year full blown review of all expense reports and departmental spending for the person and their staff. The Senior Corporate Executive and a direct report abruptly left the company “to pursue other interests.” This dreaded corporate jargon phrase usually means they were fired and had to go pursue something else.

Perhaps they learned a lesson and went straight on their expenses. But nowadays with less goodies, like country clubs, I doubt it.

The moral here is simple. Everyone in business and life needs a type of “moral compass” to tell themselves what is right versus wrong. You need to develop this when you are young and starting out and, by the time you are a Senior Corporate Executive, you won’t cheat on your expenses!