Comparisons to NRA’s Experience

The HealthSouth Collapse.

Healthsouth was a major for-profit healthcare corporation. Here’s a short summary of its downfall. “Management knew that the auditors automatically looked at any transaction over $5,000. Therefore, company employees would only move small amounts of money at a time – between $500 and $4,999.” A bookkeeper resigned and told the auditors of the fraud. “The auditors called the CFO of HealthSouth who said Vines was a disgruntled employee. Based on that response, and satisfied with the responses to the other inquires (lies) the auditors closed the file on the audit.”

A vice president helped in the falsification, then resigned. His former boss told him that if he didn’t keep aiding the frauds, they and his involvement would be revealed. He did, and when he was caught went to prison for 8 years.

The Chief Financial Officer “had learned that he should never question or criticize his boss if he wanted to keep his job and that financial results could be manipulated without discovery or negative consequence.” He turned state’s evidence and got three months in prison. His successor as CFO got three years and $2 million in fines.

The CEO, Richard Scrushy, was the ringleader, and got nearly 7 years in prison. The conclusions contained in the paper linked above apply to NRA.

  • “The audit function is important. However, a management team that is intent and unified in its attempt to override the audit can easily do so.
  • Collusion among several members of management makes the commission of crimes almost impossible to stop and difficult to catch.
  • Small concessions lead to greater compromises and, unchecked, will lead to serious ethical lapses and even crime. As detailed above, nobody sets out to end their career in prison. Several people from HealthSouth in fact did end their career that way; it all started with small, seemingly insignificant, compromises.
  • Personal morality and ethics make up the collective morality and ethics of a corporation. Very often, in the media, companies like HealthSouth are described as a monolithic entity that has a life of its own. In reality, as the HealthSouth story illustrates, the culture of the company is simply the sum total of its leadership and employees. Any of the people described here could have refused to participate in the fraud and could have stopped, or severely impaired, the widespread operation to commit fraud and then cover it up.
  • A legal or ethical compromise opens up the possibility of that original compromise being used as blackmail to participate further. Mr. Crumpler’s story is an illustration of the continuing leverage of a criminal enterprise once there has been participation. It is perhaps the most insidious pathway from a “mistake” to criminal involvement.”

The United Way Scandal

This one is even more comparable to the NRA situation. A CEO, praised for his fund-raising, who skimmed off corporate funds for his vacation flights, and luxuries, and used related companies (Ackerman McQueen, anyone?) to line his pockets, and the United Way board of directors chose to look the other way, passing resolutions in his support.

In the 1990s, Richard Aramony had been CEO of United Way for over twenty years. He won praise as a fund-raiser, “As president, Mr. Aramony helped United Way annual donations grow to more than $3 billion in 1990 from $787 million in 1970. He was lauded within the group as a “visionary” and a “genius” whose restructuring of United Way saved the charity from dissolution.” He felt he deserve a generous part of what he raised.

“Aramony contended that his lavish spending was a way to ingratiate himself with corporate executives to gain their trust and also their financial support.

“He used United Way of America spinoff companies to buy and decorate a $430,000 apartment on New York’s Upper East Side and purchase a $125,000 condominium in Miami. He flew multiple times on the Concorde.

“The United Way paid more than $90,000 for his limousine service because, Mr. Aramony told The Post, “I can’t afford to be waiting for cabs.”

“Mr. Aramony used United Way money to take vacations with Villasor and his other mistresses to Paris, London and Cairo. He bought his girlfriends manicures, bottles of champagne and bouquets of yellow roses.”

Where was United Way’s board of directors during this? At his criminal trial, he argued that ” a few weeks before he left United Way, board members gave him a unanimous vote of confidence.” Just as with NRA. He’d been CEO forever. He was their buddy. They reasoned the allegations must be untrue or inflated. He was a good fund-raiser. We can’t get rid of him! In the end, they had to be forced into it, as their local chapters (which are semi-autonomous, and support headquarters by sending in shares of their contributions) went on strike and stopped sending money.

Aramony was convicted of embezzlement and served seven years in prison. But up nearly to his arrest, the board supported him. As the Chicago Tribune reported,

“The whole sorry affair hits a nerve with countless employees whose bosses arm-twist them every fall to give their ”fair share” of their paycheck to a non-profit foundation that let its president spend $92,265 on chauffeured limousines and $40,762 on Concorde flights to Europe over three-year periods. Investigators say William Aramony apparently used United Way of America money to pay for much of what they called his ”lavish lifestyle.” In addition to his $390,000 salary plus $73,000 in other compensation, he helped himself to a disgrace of other perks. For example, his UWA expenses included $33,650 for air fare to or through Gainesville, Fla., the home of a close female friend, from 1988 to 1990.

“Between 1987 and 1991, United Way of America paid $72,509 for international air travel for Aramony, his wife and others, with an additional $58,943 for hotel bills and other expenses, investigators report. The 1988 to 1990 tally also includes $37,894 for 29 trips to Las Vegas for Aramony and his party and $19,700 for such purchases as gifts, clothes, flowers, golf equipment, entertainment and meals. Aramony, who resigned as UWA president on Feb. 27, has been unable to document his contention that he paid for personal expenses.

“It`s quite likely that the wave of disgust over Aramony`s excesses will blow away a significant chunk of United Way contributions this year. Too many people have been itching for an excuse not to have to give at the office.

“The problem is not just that Aramony used dollars donated to charity to lavish expensive perks on himself or friends in jobs in for-profit spin-offs he set up. It`s that corporate leaders let him get away with it at the same time they were pushing everyone else to keep the money coming.

“A significant part of the blame belongs to United Way`s board of governors, who either did not know how Aramony was using contributors` money or had no objection.

“The list of board members reads like a sampling of corporate All-Americans and celebrity CEOs. It includes the chairmen and chief executives of several of the nation`s largest corporations, the heads of five major unions, the commissioner of the National Football League and the presidents of the College Board, the American Newspaper Publishers Association and the Pittsburgh Steelers.

Obviously, such highly successful people are smart enough to run big-bucks organizations. But apparently they couldn`t be bothered to exercise their responsibilities for UWA. Or they treated board membership as just another plaque to hang on their wall and forget about.”

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