One Whistleblower's Story: Losing a job, but not losing hope

LETTER FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President

You might eventually have to make a tough decision that could jeopardize your job and disrupt your life.

Let's say you find an accounting regulation violation that your organization might have ignored for years. You bring your concerns to your boss who agrees you've discovered a problem. Other accounting department staff members concur until they figure out the restatement costs. You stew over this and realize that your organization is breaking the law.

You secretly report the violation to the U.S. Securities and Exchange Commission (SEC) and the audit committee of your company's board. Somehow your boss finds out and sends an email to the accounting department's executives. The attorneys review and decide that the company is in compliance. The SEC decides not to investigate the case. You lose your job and your hope.

This is the story of Tony Menendez, CFE. Except he never lost his hope. "In 2005, I was asked to approve a bill-and-hold sale [at Halliburton], and it was at least six years after the SEC issued SAB 101," Menendez says during a recent Fraud Magazine interview. This Staff Accounting Bulletin describes regulations on revenue recognition in financial statements.

He says unassembled equipment wasn't even ready to be shipped to a customer. "Halliburton was holding the equipment in anticipation of performing future oil field services for its customer," he says. 

Menendez shared his findings with his bosses, and they initially agreed with him. But they later backpedaled when they realized that correcting the accounting would've required a costly and embarrassing restatement. Menendez went to the SEC, which eventually decided it wouldn't pursue the case. A Halliburton internal investigation cleared the company. Menendez's boss outed him to the company in an email. Halliburton stripped him of many of his duties and banned him from meetings. Colleagues ostracized him. Menendez left Halliburton in 2006 and brought a whistleblower claim under the anti-retaliation provisions of the Sarbanes-Oxley Act.

In September 2008, an administrative law judge determined that Halliburton hadn't retaliated against Menendez. Menendez then represented himself in appealing the case to the Administrative Review Board (ARB). In September 2011, the ARB overturned the original trial judge. Halliburton appealed to the Fifth Circuit Court of Appeals, but the panel ruled that the company had retaliated against Menendez for blowing the whistle. After almost nine years, he'd won his battle.

"The stigma of whistleblowers hasn't changed nearly enough," Menendez says. "As long as employers see whistleblowers as a rare breed to be feared instead of individuals who add great value to the working team as a whole, it can be hard for them to prevail, and society as a whole bears the greater risk."

The ACFE will award Menendez the 2016 Sentinel Award for "Choosing Truth Over Self" at the 27th Annual ACFE Global Fraud Conference. Read more about Menendez's story in the latest issue of Fraud Magazine.

Wall Street Jed(i) to Keynote ACFE Global Fraud Conference

AUTHOR'S POST

Mandy Moody, CFE
ACFE Media Manager

The man “waging a one-man war on bank-friendly SEC settlements.”

“The judge known for holding Wall Street to account.”

“He has the courage of his convictions.”

These flattering descriptions tell me a few things about upcoming conference keynote speaker Judge Jed S. Rakoff, the U.S. District Judge of the Southern District of New York. First, there actually is someone out there who is trying to hold Wall Street’s wanderers accountable. Second, the media is capable of paying compliments. And, lastly, that he has a few things in common with many of the attendees I have met at the ACFE Global Fraud Conference over the past few years.

More than 3,000 fraud fighters from the around the world will all come together to network, learn and share war stories exactly like the ones Rakoff has fought at the 27th Annual ACFE Global Fraud Conference, June 12-17, 2016, in Las Vegas.

But, the agenda doesn’t just stop with Rakoff. He will be joined by other keynote speakers including:

• Steve van Aperen, Body Language Expert
  Van Aperen has appeared on CNN, Access Hollywood, The News Room and many other programs and is affectionately referred to as the “The Human Lie Detector”. He is known as an expert in the field of behavioral interviewing, reading body language, detecting deception and changing behaviors through rapid induction hypnosis. He has conducted behavioral interviews on 68 homicide and two serial killer investigations and consults his services to Fortune 500 companies, police departments, intelligence agencies and government departments throughout the world on how to read body language and detect deception by analyzing verbal, nonverbal and paralinguistic behaviors.
• David Barboza, Investigative Journalist, The New York Times, Pulitzer Prize Winner
  Barboza has been a correspondent for The New York Times based in Shanghai, China, since November 2004. In 2013, Barboza was awarded the Pulitzer Prize for International Reporting “for his striking exposure of corruption at high levels of the Chinese government, including billions in secret wealth owned by relatives of the prime minister, well documented work published in the face of heavy pressure from the Chinese officials.” He was also part of the team that won the Pulitzer Prize for Explanatory Reporting. In 2002, he was part of a team that was named a finalist for a Pulitzer Prize for coverage of the Enron scandal.
• Tony Menendez, the "Accountant who Beat Halliburton"
  Menendez is widely recognized for his decade long legal battle with Halliburton as a corporate whistleblower under Sarbanes-Oxley. Despite having no formal legal training, as a pro-se litigant during the appeals process, he ultimately prevailed in the Fifth Circuit Court of Appeals. An in-depth profile of Menendez published by ProPublica provides insight into what motivated him to stand up against a corporate behemoth while shedding light on the difficult journey so many whistleblowers experience after coming forward.

Along with the keynotes listed above, the ACFE Global Fraud Conference will pack in more than 70 educational sessions, three Pre-Conferences, three Post-Conferences and an unlimited amount of networking into five days. I look forward to seeing you, and hearing even more stories about your individual fight against fraud, at the conference in June. Register by March 28 to reserve your spot and receive the latest savings.

How to Conduct Yourself as a Fraud Examiner in Qui Tam Cases

GUEST BLOGGER

Courtney Babin
ACFE Communications Coordinator

Fraud examiners play a vital role in qui tam lawsuits. According to Whistleblowers.org, "any persons or entities with evidence of fraud against federal programs or contracts may file a qui tam lawsuit.’" The person(s) that bring forward the lawsuit are called “relators,” or are most commonly referred to as whistleblowers. A relator is someone that has worked inside a company and has knowledge that fraudulent activity is being committed. Typically, the relator has tried to get the issue resolved in-house, but for whatever reason has obtained outside counsel. This counsel helps the relator file a lawsuit in the federal court system on behalf of the government. Once the relator’s counsel contacts the government and informs them of the lawsuit, the government then decides whether or not to intervene.

In qui tam cases, having a subject matter expert on your case is crucial; this is the role of the Certified Fraud Examiner (CFE). An expert can make or break the case. “I’ve met experts that have knowledge (or credentials), per se, but they don’t know what they are doing or how to communicate,” said Eileen Leslie, CFE, CPA, Financial Analyst at Forensic Strategic Solutions. “A seasoned Certified Fraud Examiner, especially one focused on forensic accounting, has the education and experience needed to be able to detect and understand an unlimited amount of fraudulent scenarios. But that’s only the beginning.” Leslie shared this and other lessons recently in a Fraud Talk podcast interview, "The Role of a Fraud Examiner in Qui Tam Cases."

She goes on to explain that the CFE is there to first and foremost calculate the single damages. Single damages are the losses sustained as a result of fraud.  “It’s my job to obtain a thorough understanding of the issues to perform an unbiased analysis of the facts and make sure all necessary parties understand my damages calculations and findings,” said Leslie. It is important to calculate damages properly because the government uses that number in their negotiations (the government is allowed to go for three times the amount of the single damages).

Another important role of the fraud examiner is to make the case extremely understandable. “To truly be effective you must have the ability to articulate your findings to people of all understanding and interest levels,” said Leslie. “My personal belief is that as an expert you conduct yourself in an expert manner. I want to conduct myself in having full knowledge of the issues. I want to be unbiased. I want to look at just the facts.”

As a fraud examiner and expert in this matter, you need to prepare your case in a way that convinces the government to intervene. When a case is brought before an attorney, keep in mind that this attorney may have never been exposed to the law or rule that is being violated. It’s important to explain the case easily so that they can process the case appropriately. You can assist them by:

• Knowing the rule or regulation that has been violated.
• Providing a printed copy of the rule to the government.
• Articulating the violation from the relator in a manner that is understandable by judges and juries.
• In a binder, supplying supporting back-up documentation in a structured manner.
• Preparing a visual PowerPoint presentation with diagrams and graphs.

Above all, said Leslie, “Please be responsible. Be real in your expectations of what you can do. Find somebody that has the experience to be able to guide you appropriately so that you are gaining a full understanding of the issues at hand. Be credible, go by the facts, be responsible and make sure that [everything is] right.”

To hear Leslie’s full podcast interview, visit ACFE.com/podcast. 

The Cost of Integrity: A Whistleblower's Vindication

FROM THE PRESIDENT AND CEO

Through the years, I've met scores of whistleblowers — the ACFE likes to call them sentinels — and all of them have suffered. Many have lost their jobs, relationships and health. But I don't think I've known of a sentinel who's paid the cost of integrity more than James Holzrichter.

Back in the 1980s, Holzrichter — then an eager young analyst and systems auditor for Northrop (later Northrop Grumman) — brought to his supervisor some problems of materials acquisition and management.

"What I most especially did not know at that time [of the meeting with the supervisor] and would not even begin to grasp until some time later (and only when it was too late) was that I had just crossed what was probably the single mfalost significant invisible and irreversible line in this entire journey," Holzrichter wrote in his 2011 book, with Patrick A. Horton, Ph.D., A Just Cause: A True Story of Courage, Hope, & the Integrity of the American Dream.

"At that moment, the nightmare that was to become my life and that of my longsuffering family had been set in stone," he wrote. "It was not that I had just officially pronounced finding problems with procedures and possibly a few rogue employees: I had discovered the first visible signs to institutionally intentional and pervasive practices that if fully known and verifiable by the right parties, could threaten the very existence of the company itself."

Holzrichter eventually discovered alleged overcharging of the government and selling of defective equipment to the tune of millions of dollars.

He and another Northrop whistleblower filed a qui tam suit under the U.S. False Claims Act. The aerospace community blackballed him, so he had to deliver the Chicago Tribune newspaper and clean toilets for a living. Holzrichter and his family would live in a homeless shelter and later subsidized housing. Someone would actually try to kill Holzrichter, his oldest son and his oldest daughter. Not death threats but attempts.

Yet, Holzrichter wouldn't relent. Finally on March 1, 2005, 17 years after the qui tam filing, Northrop Grumman settled with the U.S. government for $134 million.

Holzrichter has said that he's far from a perfect man. But early in his life he took to heart his dad's words: "When is it ever wrong to do the right thing?" Those words propelled and sustained him through almost 20 years of suffering. During the 26th Annual ACFE Global Fraud Conference in June we presented Holzrichter with the 2015 Cliff Robertson Sentinel Award "For Choosing Truth Over Self." Well deserved.

For more details about Holzrichter's harrowing account, read his recent interview on Fraud-Magazine.com. 

Does Your Organization NEED a Whistleblower Policy?

GUEST BLOGGER

Eileen Leslie, CFE, CPA
Forensic Analyst, Forensic Strategic Solutions

I envision a resounding “yes” is crossing your mind, no matter who you are or where you fall in the organizational chain of command.

But seriously, stop and think. You are the organization’s owner, president, human resources manager, executive, employee, etc., and in your opinion, should your organization have a whistleblower policy or does it need one?

The difference I am trying to convey has to do with your organization’s ethical culture.

Of course most, if not all, organizations should have a whistleblower policy in place. It should include all of the standard and essential elements: definition of covered individuals, encouragement to report wrongdoings, non-retaliation and non-discrimination provisions, confidentiality of individuals and a defined process of reporting. The policy should be effectively communicated to pertinent individuals and the implementation and enforcement processes should be functional.

The question of needing a policy depends on the culture or values of the organization.

While working as a financial analyst in the U.S. Attorney’s Office, I investigated many whistleblowers’ allegations of companies violating the False Claims Act. I recall one time sitting across the table from a CEO who clearly did not foster an ethical culture when it came to doing business with the federal government. When asked if he knew or had read the federal regulations governing the company’s business, he responded by chuckling and saying the regulations were “too boring to read.” His sentiment, obviously, trickled down to the company’s management and employees, resulting in whistleblower allegations, a federal investigation and ultimate settlement with the company.   

So, what are the best practices for an organization to not need a whistleblower policy?

1. Hire ethical people.
2. Hire competent people who have the knowledge to perform their work in accordance with state and federal laws and regulations.
3. Create an environment where people are encouraged to report problems or concerns.
4. Take reported problems seriously, investigate and resolve if needed.
5. Reward good faith reporting.
6. Take the negativity out of whistleblowing or filing complaints, and create opportunities to better the organization.

Sounds simple, right? No organization wants to suffer the embarrassment and negative publicity that can occur as a result of whistleblower allegations. Review your organization’s current whistleblower policy if it has one. Ask yourself, “Do you need that policy?”