The Unpopular World of Accounting Ethics (Part 2)

Note to readers: Normally I really enjoy writing blog posts. This post and the part one are an exception. These were painful to write but I believe necessary. You be the judge.

As Controller of a Texas hotel, the corporate office seized upon us an efficiency program by a company I will keep nameless.  The word was already out that the standards imposed by these so-called experts were nearly impossible to achieve.

It was also known that department managers around the system were being terminated by lowering standards in order to meet the numbers. It was a “no-win” situation. The “elites” arrived and began their program.  

We took the time needed to scrutinize and challenge every programed step they wanted to enact on the staff. In the end, no savings could be shown other than “soft savings” (the ability to maintain standards without overtime or additional staff) as we proved we were already operating under peak efficiency.

Each year, however, one large external event was very inefficient due to remoting equipment and the rapid way we had to deliver the service. I insisted that those calculations be excluded from the standards for future measures. This event was offsite and had nothing to do with hotel operations not to mention it was not part of their study. The efficiency team of course took exception to that but I stood firm.

The potential fee for services rendered amounted to 50% of the hotel savings. Since there were no savings, there was no fee. We began getting heat from a senior vice president. Our hotel general manager was summoned to the corporate headquarters for a meeting on this. Upon his return he informed me were going to have to include the offsite event in the calculations thus falsely showing a saving.

I pushed back and told my boss that in order to comply I would have to hear agreement from our Regional Controller. One other note: I was slated for a transfer and promotion to a premium hotel and a make-or-break career opportunity. The Regional Controller initially agreed with me. When I informed the general manager he assured me the Regional Controller would change his mind. Sure enough, he called me five minutes later instructing me to make the change. His words still ring in my ears: “You might as well sin here because when you get to your next property you will not be able to.”

The end result was a very large fee paid to the so-called efficiency experts that did nothing to improve operations or profits in our hotel. Was someone in corporate on the take? The details were never shared with me so I live with that assumption.

My next hotel assignment was under property ownership with a partnership including 20% ownership by my company and 80% by a major insurance company. I saw my fiduciary duty according to those entity splits. This was a brand new property with a substantial “pre-opening” budget I was responsible for.

After the hotel opened and it was time to close out the pre-opening budget, I was advised by the regional controller to accrue the largest amount feasible for relocation expenses as there were still a few houses on the market from incoming relocated managers. I estimated what those final expenses would be and doubled the number to cover contingencies. When the 80% owner sent an audit team to review the numbers they challenged me on that accrual. I stood firm and was solidly backed by the corporate overseers.

Several months later, the most expensive home on the market suffered a pipe break resulting in extensive damages far exceeding the accrual. I was ordered by corporate management to charge this expense off without identifying it to the 80% partner.

I refused.

When being screamed at by the regional controller, I insisted on moving up the chain of command. Eventually I had the senior VP of accounting on the phone and I told him I would settle the charge if he would simply give me the exact wording I was to tell the 80% partner when they called to ask, as I knew they would. Since he could not come up with an appropriate response, he ultimately backed down and had to seek an internal method for disposing of the damaged housing loss. Chalk up a win for me!

At the last hotel I served in prior to leaving the company I discovered a serious accounting flaw. The food and beverage equipment inventory pricing was being manipulated thus showing more favorable results than reality on the financial statements. This of course pleased the property owners. They were made to believe we were doing a good job with profitability thus protecting their investment. I immediately corrected the practice. I lost my job there and knowing the person who replaced me, I am sure the disreputable practice resumed with vigor.

It is painful for me to look back on these situations and write about it. It illustrates the challenge to act with integrity in view of incredible pressure by top management to meet “Earnings per Share” projections over and above morality. This was illustrated clearly with the Enron scandal several years ago. I would hope this caused the mega-companies of today to clean up their act and go back to best accounting practices. Don’t hold your breath!