Derek worked for a reputable global consulting firm. His firm specialized in helping companies analyze their people, processes, systems, and strategy. Derek was hired into the San Francisco office and put through weeks of training to help him understand the firm methodology, technology, and culture. The firm looked for people with the right aptitude who had demonstrated a record of success in previous school, work, or extracurricular activities. They found that this type of person worked out best for the type of work the firm was paid to do.
Derek was flattered to be considered the right type of person for this company. Derek was excited to be assigned to a project and begin work. Even though Derek was trained in certain technologies, he was assigned a project for which he had no training. The project was implementing SAP—a multimillion dollar enterprise resource planning software package. The client was a mid-sized manufacturer with revenues of approximately $100 million located in Topeka, Kansas.
Derek was not trained in SAP and found out that he was replacing two managers who were just removed from the project. The project was running over budget so the firm looked for ways to get the work done less expensively. Derek, who billed out at the lower “consultant’s” rate (instead of the “manager” rate), was a cheap solution, although it would be a tough sell to the client. They liked the previous managers and felt comfortable with their skill level. Because of the demand for the SAP experts, Derek’s firm could charge Derek’s time at a billing rate of $200/hour—expensive, but less than the client was paying for the managers.
During the first day on the job, Derek’s manager took him out to lunch to give him “the scoop” on what was happening at the project and what he would be expecting from Derek. “Derek, this is going to be a very difficult assignment. You've replaced two skilled managers who the client likes. I know you haven’t been trained on, or actually even seen SAP before, but you’re smart and can come up to speed quickly. I had to tell the client you were an expert in the software in order for them to agree to bring you on. If you have any questions, don’t hesitate to ask me but definitely don’t look stupid or seem like you don’t know what you’re doing in front of the client. The client will be skeptical of you at first, but be confident and you’ll win them over. I think the transition will smooth out quickly. See me if you have any questions.”
Derek was scared to death—but what was he to do? Was this standard procedure to throw employees into this kind of situation? Regardless, he had to get to work. His immediate tasks were to map out the processes for the client’s order-to-cash, purchase-to-pay, and capital acquisition business scenarios. This involved interviewing managers and looking around most of the functional departments in the company. Here are some interesting things he found as he did his work.
PURCHASING DEPARTMENT: The head of purchasing was a handsome gentleman named Mike. Mike was very different from any other employee who Derek encountered while at the client. He wore expensive suits to work and liked to talk about his clothes with colleagues. He also drove the latest model BMW and would take the other consultants on the project for rides during lunch. Derek thought this odd because he didn’t think a purchasing manager at this company made enough money to have these luxuries. Mike also took his relationships with “his” vendors very seriously. He would spend lots of time “understanding who they were.” Some days, Mike was very supportive of Derek and other days seemed completely different and almost hostile and combative. When Derek informally inquired about the purchasing manager’s clothes and car and his Dr. Jekyll and Mr. Hyde syndrome, he heard the following justification, “He probably has a lot of money because he’s worked here for over 20 years. Plus, he never takes vacations. Come to think of it, the vacation part probably explains why he seems hostile to you some of the time.” Derek couldn’t figure this guy out but proceeded to do his work with the Purchasing Department.
INTERNAL SALES AND SHIPPING DEPARTMENT: Internal Sales was run by a stressed out single mom named Kathy. You could tell at first glance that she had probably lived a rough life. Kathy was probably not college educated but had a lot of “street smarts.” Kathy was cooperative with Derek. During the course of their interaction, Derek noticed how periodically there would be huge returns that were stacked nearly to the ceiling in the Shipping Department. When Derek inquired about these periodic huge returns, Kathy told him that sometimes they would ship orders to customers based on past purchasing habits even though the customer had not recently placed an order. As it turns out, when the customers saw a delivery at their door someone would just assume they had placed an order and would keep it. However, other customers would quickly return the supplies. “Was that a good business practice?” Derek inquired. “Well, we have to make our numbers at quarter’s end—you have to do what you have to do,” Kathy replied. On one of Derek’s weekly flights home, he picked up a newspaper and began to read about all the current frauds. Man, it seems like every company is committing fraud these days, Derek thought to himself after seeing multiple fraud related articles. Derek hadn’t had any fraud training but began to wonder if his firm or the client he was working for could be committing fraud.
Based on the case data, comment on the following issues as they relate to possible fraud:
1. Derek’s firm “selling” Derek to the client as an “SAP expert” though he hadn’t even seen the software before.
2. The unpredictable well-dressed purchasing manager.
3. The sales practices revealed in the Internal Sales Department.