United States

Ethics in action ... Do you know fraud when you see it?


The world fraud should not to be taken lightly, but sometimes situations present themselves at the club that seem insignificant to some who don’t consider the consequences. Truthfully, employees should never find it difficult to know what actions to take and which ones not to take when it comes to fraud at the club, but indeed, we know it to happen. Do you know fraud when you see it?

Consider the scene:

It’s a glorious summer day in Iowa, and the audit of a premiere country club is going beautifully….until the following scenario happens.

The Club controller takes a call from a vendor asking when they should expect payment on a few late invoices. The controller has no knowledge of these invoices and pays a visit to the department head who ordered the product. Sheepishly the department head produces the invoices, which by this point are sixty days past due. The controller is furious and embarrassed – he knows the invoices need to be accrued in the fiscal year under audit. He also realizes this will mean the Club will surpass its operating budget for the year and that the bonus available to every member of the senior management team will be negatively impacted. In no uncertain terms the controller lets the department head know the consequences of her actions.

Fast forward to the next day when the controller is explaining what happened to the lead Partner from the Club’s audit firm. The department head interrupts the discussion to explain that all is saved! She proceeds to weave a tale of how the vendor had printed the wrong dates on the invoices and that they actually didn’t pertain to the year under audit. The Partner listens as the department head produces identical invoices from the vendor, with the same amounts, description and invoice numbers, but dates that fell after the Club’s fiscal year end. Nodding with understanding, the Partner closes the conversation with one question, “So are you telling me that this product had not been received by the Club at the fiscal year end?” “That is correct”, the Department Head eagerly agrees and walks away.

The audit Partner has heard this story before and points to the delivery ticket numbers on the original and the new invoices – they have not changed. He asks the Club controller to contact the vendor and request those delivery tickets. Can you guess the rest of the story? Indeed, the delivery tickets clearly proved that the product had been received long before the Club’s fiscal year end. The Partner explained what the Controller already knew, the Department Head had committed financial statement fraud – possibly with the help of a vendor, possibly at the urging of others whose bonus was being negatively affected.

After speaking with the General Manager, the Club President and the Club Treasurer, the Club Controller met with all three and the Department Head, who admitted that she had forged the new invoices to cover up her budgeting error. While there were a number of avenues open to the Club, they considered the fact that they now knew that someone in charge of a significant area of the Club was willing to compromise her personal ethics, as well as the Club’s written Code of Business Ethics, and lie for a relatively small amount of money. What would she do if much greater amounts were on the line? They felt they had no choice but to terminate the Department Head.

Clubs employees are often faced with such ethical dilemmas. Club management and leaders need to routinely reinforce the fraud conscience of the club and clearly communicate that unethical behavior will not be tolerated. If club employees struggle with what to do in certain situations, such as those in our story, have them reflect on the CMAA test of ethical compliance:

  • Could I announce my decision to the membership at the club’s annual meeting?
  • Could I announce my decision to my fellow professionals from other clubs at our annual conference?
  • Would my decision meet with the approval of business professionals?

Simple but effective – if an employee can’t categorically answer yes to any of these questions, they probably are making the wrong decision. What would your employees do?