The stunning indictment and guilty plea of Roosevelt Hairston Jr., the former general counsel and executive vice president of Children’s Hospital of Philadelphia(CHOP), for embezzlement gives us pause. The pause comes from the fact that the embezzlement amounted to $1.7 million and was carried out over a 12-year period (from 1999-2011). That’s about $150,000 per year. Not bad work if you can get it, especially when you consider that Mr. Hairston’s salary topped $700,000 as of 2009.
How did so much go on for so long? The case is instructive for internal auditors in terms of using those soft clues in order to maximize their ability to ferret out thieves and hustlers.
1. Those Invoices and Vendors
The indictment indicates that all the funds were obtained using just 93 invoices over the 11-year period. That’s a chunk of change per invoice, and invoices of that level deserve some follow-up.
The indictment also indicates that the invoices were submitted by fake firms, firms created by Mr. Hairston for experts and outside counsel for the hospital’s litigation. Verifying the identity of those firms and the recipients is critical. In at least one instance, the internal auditors at CHOP did follow up with the alleged vendors, but Mr. Hairston stole the identity of a friend in order to use an e-mail to assure auditors that he was indeed the vendor and had indeed performed the services. However, the e-mail follow-up is in itself a lesson – anyone can e-mail. A face-to-face meeting, including a visit to the vendor’s office would have been in order.
That Mr. Hairston alone could submit the invoices for payment indicates a fundamental weakness in internal controls.
2. Oh, That Lavish Lifestyle!
Mr. Hairston had a yacht with a full-time captain, a 10,000-square-foot home, and staged party after party. And there was a stable of cars that would make Jay Leno blush. That level of spending is worth a look-see into accounts by internal auditors.
3. Those Investments!
The need for cash on Mr. Hairston’s part increased as his real estate investments went south. Those
complicated personal portfolios and activity there are things to watch, or at least clues as to one of the segments of the triangle of fraud – need. In this case, it was the need for cash.
4. The Generous and Philanthropic Soul
In a classic lawyerly line at Mr. Hairston’s guilty plea, his counsel noted that Mr. Hairston used the yacht primarily for raising money for the hospital and other charities. His counsel noted that his motive was not greed. Ah, when you take money in order to set the stage for raising money for charity, well, it’s different.
By all accounts, however, Mr. Hairston was a model Philadelphia citizen when it came to charitable causes. However, history has taught us that where there is a generous executive, be afraid and look more closely. Here’s a partial list of history’s most generous corporate titans, all of whom were convicted or entered guilty pleas to felonies.
• John Rigas (Adelphia)
• Bernie Ebbers (WorldCom)
• Dennis Kozlowski (Tyco)
• Jeffrey Skilling (Enron)
• Ken Lay (Enron) (his guilty verdict was vacated because he died pending its appeal)
• Bernie Madoff (Madoff Securities)
• Richard Scrushy (HealthSouth)
• Tim Donaghey (NBA referee)
• William Aramony (United Way)
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