Sentinels We Have Known

Fraud examiners have tough jobs, but they could be tougher without sentinels -- courageous insiders who risk all to do what's right. Here we revisit sentinels who have been honored through the years in Fraud Magazine. 

 

Here's the typical scenario. A loyal auditing employee -- let's call her Brenda -- suspects that her supervisor is being coerced to cook the books. Brenda is conflicted; she could report her suspicions to her boss' boss, but he might be the ringleader. If she goes to someone higher in the food chain -- such as the VP for accounting -- she might be putting her head on the chopping block. 

 

In this SOX-enlightened age, she decides to go to the chair of the audit committee. He assures her that he'll look into the matter, which he does. Soon her boss relegates Sarah to a small cubicle, reduces her responsibilities, and gives her a paltry raise. Within a year, the firm fires her after a negative job review. 

 

According to Joseph T. Wells, CFE, CPA, Chairman and founder of the ACFE, sentinels (aka whistle-blowers) are labeled as bigmouths, busybodies, snitches, tattlers, and troublemakers. "And as CFEs, we wonder why employees don't come forward and tell us of the frauds they know about," he said. 

 

Through the years, the ACFE has honored some courageous people in Fraud Magazine and with the Cliff Robertson Sentinel Award. Here are sentinels who tenaciously gritted their teeth, risked their careers and mental health, and saw some changes. 

 

CONSCIENCE OF THE EC 

In 2002, Marta Andreasen, the European Commission's chief accounting officer at the time, reported that the US$120 billion EC budget was "massively open to fraud." The reward for her forthrightness was suspension from her duties and forced residence into professional limbo. 

 

"I was the chief accounting officer responsible for all the European Union funds and I acted according to my professional integrity in the defense of taxpayers," said Andreasen in the September/October 2004 issue of Fraud Magazine. Andreasen received the 2004 Sentinel Award. 

 

Andreasen said she found "serious and glaring" shortcomings with the accounting computer system, no double-entry bookkeeping, and software that allowed any EC staff to change entries without leaving fingerprints or audit history. 

 

She was asked to sign off on the EC's 2001 accounts but wouldn't do it because she believed she had evidence that the accounts didn't accurately reflect the financial situation. The EC hierarchy threatened her with dismissal if she didn't comply. She reported the accounting system problems to her supervisors and EC's president and vice presidents. 

 

Her superiors said they were considering moving her to another position because of a "breakdown of relationship," as the EC commissioner put it. They eventually removed her from her post. Andreasen said at the time there was a complete lack of understanding of the basic control principle of separation of duties. 

 

"Those in charge of operations were not separated from those in charge of accounting and finance," she said. 

 

Andreasen said she has paid both professionally and personally for being a sentinel but she has "always tried to ensure I fight until the end to defend my integrity."

 

Andreasen took her case to the new Tribunal for the European Civil Service in June 2005, but it wasn't until November 2007 that the tribunal rejected her lawyer's arguments and judged against her. Recently she told Fraud Magazine that she hasn't given up. In January 2008, she introduced an appeal before the European Court of First Instance; the case is still pending. 

 

It wasn't easy for Andreasen to find another job, but eventually the United Kingdom Independence Party (UKIP) appointed her its treasurer. She's a UKIP candidate to be a member of the European Parliament in the June 2009 elections. 

 

Andreasen said she has given up "the illusion that the EU will become the shining example of financial probity." 

 

PREVENTING VIOXX DEATHS 

The long, sloping wall of the Vietnam Veterans' Memorial in Washington, D.C., contains the names of 58,000 men and women who died during that war. As Dr. David J. Graham, a scientist at the Food and Drug Administration (FDA), said in the September/October 2005 issue of Fraud Magazine, that's 2,000 less than the estimated U.S. citizens he believes have died from the effects of the arthritis drug Vioxx. 

 

"Between 1999 and 2004, an estimated 20 million Americans took Vioxx, 80 million worldwide," Graham said. "We've estimated that up to 140,000 patients [who took Vioxx] suffered heart attacks. ... Of this number, 60,000 died," said Graham, associate director of the FDA's Office of Drug Safety and an employee of the agency for more than 20 years. 

 

In November of 2004, Graham testified before the Senate Finance Committee that the FDA had silenced him and his colleagues from reporting on the risks of Vioxx and other drugs. 

 

"The FDA has let the American people down and sadly betrayed a public trust," Graham said during his testimony. He alleged that because the FDA is unduly influenced by the pharmacy industry it's "incapable of protecting Americans against another Vioxx. We are virtually defenseless." Merck & Co. Inc., the maker of Vioxx, eventually pulled the drug from the marketplace. 

 

"If I failed to speak the truth," said Graham, "I would become part of the problem, and all these deaths would, in part, be my responsibility. -- The decision to speak the truth wasn't difficult. My conscience guided me in the way I should go."

 

Graham said the personal costs have been high. "Internal criticism, threats and ostracism, coupled with an orchestrated campaign of slander and innuendo initiated and carried out by FDA managers, took a great toll on my family," he said. "Apparently, pharmaceutical representatives and lobbyists also participated in this smear campaign on Capitol Hill." 

 

But there have been great rewards for his persistence, he said. 

 

"Human life is worth far more than a little difficulty at the office," Graham said. "Being able to look my children in the eye and for them to know that I have acted with integrity is priceless. Plus, I'm able to sleep at night."

 

Graham received the 2005 Sentinel Award. 

 

BATTLING FEDERAL CONTRACT ABUSE 

Bunny Greenhouse was once the top civilian in charge of contracting and procurement in the U.S. Army Corps of Engineers. As the Corps' procurement executive, she was responsible for proper conduct of federal law in the agency. But in the lead-up to the current Iraq War, she protested that the Corps and the Army gave Kellogg, Brown and Root (KBR) -- a subsidiary of Halliburton -- a no-bid, sole-source "compelling emergency" contract to provide services in Iraq for a two-year base period and options for a total of a possible five years. Greenhouse said she believed that the contract should be a "bridge" to future competition and should be limited to just one year. She wrote her strong convictions in ink on the final contract approval document. 

 

In October of 2004, four days after Greenhouse briefed the Corps' new commander about the alleged KBR improprieties, the commander gave her a letter that said she would be removed from her position and demoted from the Senior Executive Service (with the protocol of a one-star general) to a lower level but with an opportunity to retire immediately with full benefits. That was overturned on Oct. 21, 2004, when Greenhouse's attorney wrote to the acting secretary of the Army requesting an investigation. 

 

The acting secretary directed an independent Department of Defense Office of Inspector General investigation and halted all adverse actions to Greenhouse. She filed a formal request for investigation to members of Congress. 

 

The news media reported on the story and Democratic members of Congress asked that she testify. The Corps heard of Congress' request and immediately sent the acting general counsel to tell Greenhouse it wasn't in her best interest to testify. She reported her charges against the Corps at a Senate Democratic Policy Committee Hearing on June 27, 2005. 

 

In July 2005, the Corps commander told her that he was completing what he had begun in the fall: she would no longer have the option to retire but would be removed from her position and demoted, she said. In August 2005, three Congressional Democrats sent a letter to then Defense Secretary Donald Rumsfeld that said her demotion "appears to be retaliation" for her Congressional testimony. 

 

To this day, Greenhouse said she still works in her diminished capacity "in a cubicle in a dark corner totally out of the mainstream of the Corps." She said no Department of Defense investigative body has ever contacted her. 

 

"My removal from office continues to have a chilling effect on the government contracting community," she said in an article in the July/August 2006 issue of Fraud Magazine. "My removal serves to clarify that the power structure will no longer tolerate efforts to curb contract abuse. ... I voiced strong objections to the contract abuse I witnessed in the ramp-up to the Iraq War and questioned the award of billions of dollars in no-bid, cost-plus contracts. ... Because I did my job too well and because I failed to support the cronyism and the good-old boys' mentality that remains a considerable force in Army contracting, I lost my job." 

 

Greenhouse said she's glad she spoke out. "Integrity in government is not an option," she recently told Fraud Magazine. "It is an imperative." Greenhouse received the 2006 Sentinel Award. 

 

In August 2007, Greenhouse completed 25 years of federal service, but the Corps didn't honor her at its annual awards ceremony in June 2008 or list her in the award program. In September 2008, someone slipped an envelope onto her desk containing her 25-year certificate and pin. "That's the unfortunate environment I work in every day," Greenhouse said. 

 

ENRON'S INTERNAL GADFLY 

Dec. 3, 2001 was Black Monday at Enron -- the day the company declared bankruptcy. Nearly 5,000 employees were called to a massive meeting at the downtown Houston headquarters and told that the paychecks that they had recently received would be their last. Three weeks before Christmas. 

 

In August of that year, Sherron Watkins, an Enron vice president, had sent an anonymous memo to Enron's CEO and Chairman Ken Lay that read, "I am incredibly nervous that we will implode in a wave of accounting scandals." 

 

Of course, that's exactly what happened. After the company's demise, the investigating U.S. Congress discovered Watkins' memos to Lay and other top executives. (After sending the memos, she had met with Lay with no results.) Watkins was soon lauded as an "internal whistle-blower," brought before Congressional and Senate hearings to testify against her former bosses, and heralded by TIME magazine as a "Person of the Year" in 2002 with WorldCom's Cynthia Cooper, CFE, and the FBI's Coleen Rowley. 

 

Watkins said that the Enron debacle stemmed from "a complete breakdown in moral values," during an interview with Fraud Magazine in January of 2007. "But the scary part is that the breakdown was not done by outright intention but more by small steps in the wrong direction." 

 

She referred to the well-known analogy of the frog and boiling water. "If a frog is thrown in a pot of boiling water it will jump out and save itself," she said. "But if a frog is in a pot of cool water that is slowly heated, he'll stay in the pot until he boils to death. 

 

"Leaders and employees will never choose wrong when faced with a clear-cut choice between right and wrong, but there are those gray areas that involve rationalization to stop your gut from bothering you, she said." 

 

Watkins said that when Enron's accounting moved from creative to aggressive, the pot of water moved from cool to lukewarm. "Unfortunately, nobody protested and those involved with the creative transactions soon found themselves moving onto the aggressive transactions and finally in the uncomfortable situation of working on fraudulent deals," she said. "The water was boiling and they were stuck."

 

"I am deeply appreciative of the ACFE," she said. "It takes passion and loads of blood, sweat, and tears to start and build an organization like the ACFE. Joe Wells firmly believed that it was the job of an accountant to find and prevent fraud. Because of that passion and hard work, the ACFE is a healthy, thriving, fraud-busting machine." 

 

Watkins continues to speak and write about fraud deterrence, the U.S. corporate culture, and ethical matters. She can be reached at sherron@sherronwatkinsandco.com. 

 

"The current financial crisis is just a larger outbreak of the same disease that killed Enron," Watkins recently told Fraud Magazine. "Out-of-control compensation practices that incentivized employees to take incredible risks -- corporation-killing risks -- because the reward for the risks was personal short-term benefits in the form of bonuses that insulated employees from the risk of bankrupting companies."

 

EPA'S FORMER WATCHDOG 

William Sanjour, the recipient of the 2007 Sentinel Award, said he comes "from a long line of people who would not be cowed when they are right." He spent more than three decades confronting deception and inequities in the U.S. Environmental Protection Agency. 

 

In the late 1960s, the EPA hired Sanjour as a consultant. Several years later, as branch chief in the new Hazardous Waste Management Division, he supervised studies of hazardous waste damages and treatment technologies. His efforts led to the passage of the Resource Conservation and Recovery Act of 1976 (RCRA). 

 

What began as an effort to do his job by developing regulations for the treatment, storage, and disposal of hazardous waste became a long, drawn-out battle with the EPA, multiple presidential administrations, and several federal agencies as he fought to make the RCRA work in the true spirit of the legislation. 

 

In 1995, Sanjour won a landmark suit against the U.S. federal government, which established the First Amendment right of federal employees to "blow the whistle" on their employers. To this day, Sanjour v. EPA hasn't been overruled. Until his retirement in 2001, Sanjour faced retaliation, reassignments, demotions, and legal showdowns. 

 

Sanjour said, in an interview article in the Sept./Oct. 2007 issue of Fraud Magazine, that he followed the example of a great whistle-blower sentinel: Martin Luther. "When faced with the wrath of his superiors, rather than back down, Luther formed alliances with the public and the powerful north German princes who shared his views and defied the authority of the church," he said. "I did likewise by finding allies in environmental and whistle-blower organizations, in Congress, and in the press. They encouraged me to continue speaking out and helped protect me from the backlash."

 

TENACIOUS WORLDCOM AUDITOR 

"Don't ever allow yourself to be intimidated," Patsy Ferrell had said to her young daughter, Cynthia, after a grade-school bullying incident. Cynthia Cooper, CFE, remembered that exhortation years later when she and her team discovered fraud of huge proportions at WorldCom. 

 

Faced with the decision of vigorously investigating suspicious transactions or looking away, she did the honorable thing and pursued the crimes to the end -- but not without much trepidation, a queasy stomach, and shaking hands. 

 

In 1994, Cooper landed a job in internal audit at WorldCom -- then known as LDDS -- in Jackson, Miss. When the company moved to her hometown of Clinton, Miss., population 23,000, she thought she would settle into a comfortable niche, surrounded by her husband, children, extended family, and lifelong friends. But her nightmare started in the summer of 2002 when, as the vice president of internal audit, she grew increasingly suspicious of some accounting entries. As she stepped up her team's investigations, no one would give them straight answers. 

 

"As an auditor, when someone is hostile or acting in a manner that is out of character, you should ask yourself why," she said in an interview article in the March/April 2008 issue of Fraud Magazine. "My instinct from ACFE fraud training and years of audit experience told me to take another look." 

 

The efforts of Cooper and her team uncovered massive fraud. On June 25, 2002, WorldCom announced it had misstated its financial statements over the previous five quarters by $3.8 billion, an amount that would ultimately grow to some $11 billion, she said. WorldCom came to be known as the largest fraud in U.S. corporate history. Some have said that WorldCom was the final impetus in encouraging Congress to pass the Sarbanes-Oxley Act of 2002. In the same year, TIME magazine named her a "Person of the Year" with Enron's Sherron Watkins and the FBI's Coleen Rowley. 

 

Cooper is president of The CooperSaxton Group LLC, which provides professional services in corporate and board-level training, program management and oversight, ethics and compliance, governance and enterprise risk, internal and forensic investigations, and litigation support. She can be reached at: ccooper@coopersaxton.com. 

 

During speaking engagements she continues to encourage fraud examiners and auditors to listen always to their instincts. "If something doesn't feel or see or seem quite right, it might not be,” Cooper said. “Continue to ask for support and dig until you are satisfied that you’ve gotten it right. Don’t allow yourself to be intimidated by superiors.” 

 

Good advice for all would-be sentinels. 

 

Dick Carozza is editor-in-chief of Fraud Magazine. 

 

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