In this five-part podcast series, I visit with Terry L Orr, a Managing Director at Kroll, a division of Duff & Phelps, the sponsor of this series. We visit on the current state of compliance through the lens of recent Foreign Corrupt Practices Act (FCPA) enforcement actions and the Evaluation of Corporate Compliance Programs, 2019 Guidance, consider some of the specific issues in compliance for private equity and the increased importance of compliance in the healthcare industry. It is a comprehensive look at state of compliance at the half-year mark of 2019. We begin this series by introducing Orr, how he came into focus in the compliance space and where he sees compliance headed down the road.
Orr grew up on a ranch outside of Cody, Wy. He attended a (literally) two-room schoolhouse, grades one through eight. Grades one through four were taught by Mrs. Carlson and grades five through eight, were taught by Mr. Carlson. There were 22 graduating members in his high school class. Orr went to college at Brigham Young University, graduated with an undergraduate degree in Accounting and a Master’s Degree in Tax. From there he went into public accounting as an auditor and audit partner, then moved into work as a forensic accountant, consultant and expert witness.
I asked Orr, “Why is it that you do what you do?” Most interestingly he replied that he enjoyed educating and helping people and businesses meaningfully address challenges they have or will face through the asking of insightful questions and the development of alternative options. He also likes the process of finding a solution or solving a puzzle. All of these skills and several more are used by a forensic auditor on a daily basis.
We then turned to some of Orr’s most interesting cases in which he has participated. One matter that stands out to him was a situation where the auditors identified a $23 million shortfall in a company’s balance sheet. The amount was material to the financial statements. The company had investigated the missing assets to no avail and finally brought in outside assistance. Orr and his team determined that no funds had been stolen from the company.
However, what they did find was that the issue resided in the marketing department, where the head of the department was “a sweet 65-year-old, grandmother who had been with the company most of her working career.” He noted, “We were split on the whether she could be involved in anything nefarious but working late one night I noted the excess of the marketing spend over the budget, over a series of years, amounted to the lost $23M.” It turned out that she had literally “taken it upon herself to spend additional marketing dollars to support the business, above budgeted amounts, and hide the difference in various prepaid accounts. The company had gone through budget cuts and she felt the budget cuts in marketing would hurt the financial health of the company. Rather than jeopardize the health of the company she spent what she thought were necessary marketing dollars.”
For Orr, one of the most interesting facets was that this employee never took a dime for herself. Yet her actions resulted in the company needing to restate financial statements and revising their internal controls procedures, besides having to address shareholder concerns. This matter made clear not only the costs to an organization when fraud occurs but also the need for robust internal controls, which cannot be over-ridden to protect a company from overall financial loss. Orr concluded that even though no monies were taken for personal use, it was really catastrophic for the company, having to restate their financial statements and related civil litigation involving shareholders. The entire affair also significantly damaged the culture of the company. Orr said it “had devastating effect on the company.”
We then turned to significant issues which Orr sees on the horizon. Here he noted, “I think some significant developments in the FCPA this year and going back a few months, both in terms of the enforcement actions and of course the release of Evaluation of Corporate compliance Programs, 2019 Guidance, are significant.” He pointed to FCPA investigations which resulted in some significant findings and results and what should be applied as best practices. Orr also views the 2019 Guidance as significant in requiring companies to maintain a strong compliance program and meet best practices that address the new issues which surface every year.
For more information on Kroll, a division of Duff & Phelps, click here. For more information on Terry Orr, click here. Join us for our next episode where take a deep dive into lessons learned for the compliance practitioner from recent key FCPA enforcement actions.