Years ago I was talking with the QA Manager at a major aerospace/defense contractor. He began reminiscing about the “good old days” and about the time they had a big government audit coming in. They had a lot of junk and they didn’t know what to do with it – things like limited life materials that had expired, scrap parts they didn’t want to throw away, etc. They didn’t want the auditors to find it. Anyway, they decided to load these items into trucks (3 truck loads) and for three days these trucks did nothing but drive continuously around the plant, until the audit was finished.

He was totally serious, and I believed him.

Yes - I've seen similar situations. Fraud is fraud no matter how you look at it... Shame on you for not reporting it, if you didn't (which I *assume* you didn't). The responsible person should be tried in a court of law for fraud.

The “good old days” was when a company could easily get away with outright fraud (as many still do today...).

A friend told me a story of how they loaded all of their junk into a storage trailer and put it out back -- the auditor busted them.

Guess auditors must know to look for the sudden appearance of a trailer out back, eh?

Years ago I was talking with the QA Manager at a major aerospace/defense contractor. He began reminiscing about the “good old days” and about the time they had a big government audit coming in. They had a lot of junk and they didn’t know what to do with it – things like limited life materials that had expired, scrap parts they didn’t want to throw away, etc. They didn’t want the auditors to find it. Anyway, they decided to load these items into trucks (3 truck loads) and for three days these trucks did nothing but drive continuously around the plant, until the audit was finished.

He was totally serious, and I believed him.
I have seen this before too, but the trucks were taken off site and parked until the visit was over :yes:

Hmmmmmmmm !!!!!!!

HMMMM - indeed. Maybe not for the same reason.

Welcome to the cove Ralph Kolts. :bigwave:

Let's not get carried away.

http://elsmar.com/Forums/showpost.php?p=73818&postcount=87

I do not htink that there are many companies that do not hide one thing or another. Just look at the funny audit stories thread. Most audit prep classes operate on the do not ask, do not tell policy. I do believe that there are limits.

Two Enron traders, from the office where the tapes were made, have admitted manipulating energy prices and pled guilty in court. Another goes on trial in October. Former Enron chief Ken Lay is the only top company official who has never been charged with any crime.
Please consider editing this diatribe. This is not the Coffee Break Forum.
You have at least one factual error: Ken Lay has been indicted.
Here's at least one link to that effect:
http://money.cnn.com/2004/07/08/news/newsmakers/lay/

I lived in a neighborhood in San Diego California where, not many months after we moved away, households were experiencing $600-per-month electric bills. Friends and neighbors of mine had these crippling electric bills, including some really nice retired people.

My family would have been driven into bankruptcy were that to go on for very long.

I have seen this before too, but the trucks were taken off site and parked until the visit was over :yes:

I had been told of this sort of happening too. I have also seen other practices that were questionable at best, but fraudulent? This is not easy for shop floor employees to be sure about.

Here's a stupid question: If the organization is not one subject to oversight by government agencies, to whom can one report such fraud?

I was worried that our new comer would feel attacked by the turn this thread has taken. It was originally posted in the funny audit stories thread. It was broken off, he was told "shame on you" and then, it could possibly be construed that his story somehow equates with the Enron scandal. I know I'd be put off if that was how my first post had been responded to.

I deleted my post as too political and not appropriate for here. My apologies for the rant.

I deleted my post as too political and not appropriate for here. My apologies for the rant.'nuff said:agree:

As a follow-up to my initial post and reflecting on some of the subsequent postings, the situation I described WAS NOT fraud. There were no laws broken – not criminal, not civil, not contractual. It was a situation where the company intentionally deceived the audit team to avoid a potential audit finding. It was a story that happened many, many years before; told to me by a grizzled, curmudgeon of a QA Manager. There was nothing that I could have reported and no one to report it to. It was a funny story because of the extreme measures taken to hide the situation when they could have just fixed the problem in half the time.

Regarding the discussion of fraud. This is a very important topic and one that we as auditors or quality professionals need to be ever vigilant. There are plenty of newspaper headlines and court proceedings involving fraud, failure to test, false certification, product substitution, counterfeiting, product liability created by quality defects, etc. I would encourage further discussion on this topic including lessons learned or our role in preventing/mitigating. I believe that we (auditors and quality professionals) can actually create, rather that mitigate, legal exposure if we are not diligent.

A few years back I wrote a paper titled “The Legal Aspects of Auditing”. It discusses some of the legal risks we may face and ways it can be avoided. I’ll dust off this paper and send it in to Mark asking him to consider posting it under the Registered User Articles heading. Hopefully you might find it interesting and informative.

I'm looking forward to reading it.

I split this off the originating thread Thursday night because I have seen so much fraud over the years that it disturbs me. I apologise for the earlier rant, yet my passion in speaking against fraud is because I have been put in the position a number of times where I was asked to lie or obfuscate the truth and I believe fraud is more wide spread, and affects the 'average Joe or Jane', more than people tend to think.

As I sit here thinking back over the years, it was the rare company that I worked for or with which did not have what one might call 'secrets' which outsiders would categorize as fraud. I think this is one reason I have become disillusioned with business. I don't like to be put in a position where I have to lie or tell 'half truths'. It makes me nervous and uncomfortable, and that feeling doesn't go away when you go home. Even when I wasn't directly involved - where I watched others who were, as in meetings - I did not feel comfortable. I guess I feel if you're there watching it, knowing what the reality is, you're in the role of 'accomplice'.

This thread started out citing a case of a company hiding things. I can relate, I also have seen the 'moving truck' routine. Once it was a warehouse across town. Some may not call this fraud, but I do. Whether or not it is legal and the 'seriousness' of doing it situation specific, but just that they do it is disturbing. The specific goal is to hide things from auditors.

As I think back I rarely saw a company that wasn't 'hiding' something - not necessarily in trucks. I remember a contract job I took as a QA where the second day there I had to go to my boss and tell him I would not participate in fraud - which is what they were doing. In this case they got a contract for a part but subbed it out without notifying the customer. I showed my boss a printout of a page on the customer's supplier web site which had a 'special notice' which read something like "We know a lot of suppliers are subbing out contracts and not notifying us. This is not acceptable and we will be looking for this." I told my boss I would not participate in lying to the customer. He told me he was told to do it and that there was nothing else he could do. I went to his boss and showed him and told him the same. I stayed on because it was excellent money but the deal was struck that I would not have to deal with that customer. The way it was set up it is doubtful an auditor would have figured out what was going on. It is typically the people doing the work that end up in the middle facing an auditor. In one post here a qualification was made that while some things are 'wrong', many times what is happening is not technically illegal. The 'legal' line is always going to be case specific as is the 'severity' of the impact of the fraud. The mis-labeled oxygen cannisters in the Valuejet crash in Florida comes to mind. As I understand it, the subcontractor did not intentionally mislabel the cannisters - it was 'employee error' (probably a training root cause). The coverup - changing the records - was the fraud. Obviously ValueJet is an extreme example. The most minor might be an operator entering false data such as missing an inspection and 'filling the data in later' to hide having missed the check in high volume manufacturing. The missed check, being one of many made during the run, will probably not have any impact. Entering false data in this case may not be illegal per se by US law, but it is still fraud and I bet the company policy would allow for dismissal for knowingly entering false data.

While the focus in this thread is turning towards auditor liability, most of the people who visit here are not auditors, but rather people working in the trenches who have to give auditors answers - which is why I have gone beyond the scope of how all this applies to auditors.

As to auditors, I also am anxious to read the paper. My position is not that it is an auditor's place is to identify and expose fraud (such as moving trucks around or altered {or falsified} test data). I was thinking of the recent thread about liability insurance. That thread mainly was applicable to consultants, but as an auditor the liability issue is significant. For most of us right now it's an abstract, if you will, but if something happens at a company and a court case ensues you can bet the auditor will be looked at closely and may even end up in court. I got calls from lawyers as far back as 1996 asking about ISO 9000 because they had cases where a company was registered and wanted to know about what records were required and such. That said, by now I'm sure lawyers have educated themselves to ISO.

I think one of the biggest tests I can think of was the Firestone case where people were saying "Where were the auditors?" The thrust at the time was the question (right or wrong) of why QS-9000 audits had not identified a problem at Firestone. As far as I know 'fault' was never fully determined between Ford and Firestone. But QS-9000 registration and the role a standard (and the registrars and auditors) plays came into the light for a while and was somewhat clarified. From that it was pretty much established that auditing firms in manufacturing are not at fault when a company screws up as happened in that case. While some may not directly relate this to fraud, the charges came down to how data was evaluated and whether or not 'bad' data was 'hidden' (including internationally).

I would hope that after this 'test' it is relatively well established that the dividing line is auditors in manufacturing who are auditing to a standard have extremely limited liability. This is strengthened because it is a sampling system and the disclaimer that "...We didn't look at everything so our results are not a guarantee that problems do not exist..." I have never attended a first day or last day meeting at a company being audited where the lead auditor did not make this clear (The Big Disclaimer). In addition, I think it brought out that auditors are supposed to be looking at compliance to the requirements of the standard being audited to - not whether data or records in general are correct and 'honest'.

So I don't know. I'm sitting here thinking about the two aspects: Fraud and Liability. I have never been faced with a situation where I was auditing and found something that I knew to be fraudulent. I don't know what I would do if that happened. I have had a few suspicions that everything wasn't above board, but nothing I deemed to be something I wanted to dive into beyond my responsibility as an auditor.

My question: If you were auditing and found definite evidence of fraud with obvious potential legal implications, what would you do?

My question: If you were auditing and found definite evidence of fraud with obvious potential legal implications, what would you do?

To answer your question, all of the audits I perform are reviewed by the executive committee so if its on the report then its been reported. That having been said, the question now becomes "Would I put it on the report?" I honestly can not say that I would. It has never happened that my findings were so ****ing that I would be afraid to report so i have never faced the situation. I would like to think that I would indeed report the fraud.
I am however, reminded of a test I once took in order to gain employment at a major jewelery company. in that test (trying to see if you would lie) the question was asked "If you seen your Mother steal something would you report her to the police?". Of course the answer is NO! I got the job!

There is fraud and there is fraud. Is it fraud when you clean floors, tidy-up desks, dust off things, etc. just before an auditor's visit but rarely do it otherwise? Not worth acting like a whistleblower on that, IMO.