When the Final Reverse Auction Price Becomes a Starting Point...
I loved the coverage of this story over on the Strategic Sorcerer. Apparently, the Feds are looking to seize the property of a couple that defrauded Best Buy following a reverse auction. How'd they do it? Apparently, "Chip Factory [which is now accused of defrauding Best Buy out of millions of dollars] submitted lowest bid prices through online reverse auctions run by a company identified as National Parts, Inc. Once the job was secure, Chip Factory basically charged Best Buy whatever the hell they wanted, or as the courts called it 'a price significantly higher than its bid price'". Best Buy had a hand in the scandal as well: "The former Best Buy vendor-relations manager, Robert Bossany, has also been charged with multiple crimes including money laundering for allegedly taking kickbacks from Chip Factory before being fired."
My big question here is simple: how were a supplier and an employee able to defraud a company that ran a very sophisticated procurement and IT shop? In our own analysis of Best Buy -- my firm, Azul Partners, maintains a database which tracks approximately 30 fields (e.g., industry awards won, technology used, etc.), allowing us to measure procurement, supply chain and IT sophistication of the Global 2000 for marketing purposes -- we ranked the venerable electronics retailer as one of the three Innovators on the Geoffrey Moore adoption scale in retail. Translation for non-Crossing the Chasm readers: Best Buy ranks in the top 2% of all retailers in our analysis of Spend Management sophistication. Clearly, this means that there are many retailers and other companies with purchasing and payment controls that would make Best Buy's look bullet proof. Methinks there will be many more scandals like this to surface.
- Jason Busch
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I would also wonder about how this was managed (?). It would indicate poor controls at almost each stage and level of transactions. Right from (in reverse order) payment release, invoice approval, material receipt, releases to shop and sales and whole works.
From the overall complexities involved, it would not really be possible to run this kind of racket without other 'collaborators'. Apart from any of the normal operations people, some one 'inside IT' is also a likely candidate for the team involved here.
I can understand your frustration and alarm at not being able to detect this kind of problem through your model. But I guess that is a learning. Particularly that some one inside can hoodwink everyone for a while at least.
Possibly the mechanism adopted in this fraud is a good learning to make your model more sensitive.
Shashank
What a great observation. I think you are absolutely correct. I also think that the downturn will cause more and more people to resort to fraud, hence putting in place a mechanism to measure ethics, fraud, etc. inside companies in general is becoming all the the more critical.
What else has this Bossany done to Best Buy Corp., and other companies he has worked for? There are too many sick individuals like him out there, and they need to be sent to a place like SHASHANK prision for a long time.
Once they get out of prision, they will do these actions again, as they are addictions, and they find pleasure in these actions.
Well, the Trial which just ended proved a much
different story than where it started. Turns out
Best Buy expected their employee of taking
gifts/bribes from this company and as soon as
he pleaded to get a “better deal” with the government
Best Buy filed for a $15,000,000 increase
in their “Employee Dishonesty” policy they
had with Zurich Insurance. It came out in
court that the head of Auditing of Best Buy
applied for this increase knowing it was
investigating this but lied on the application
and was accused of insurance fraud-this story
is in the process of being exposed. The government
witness, the one who pleaded to the very Judge
in this trial, took BACK his confession! He did
this in the face of DOING MORE time in
prison! The judge told the jury that this witness’s
sentence depended on much he helps the
government!!! And what did he do? He stood up
and admitted he took gifts from all the venders
and he COULD NOT hide these bid-invoice
variances!! The trial also brought out that
all the venders were doing these changes
while the head systems guy knew about these
invoice changes daily! There was a contract
between Best Buy and a third party company,
National Parts, Inc. and this company reported
ALL of these changes to Bedt Buy. Bedt Buy knew
about these changes, accepted them and paid National
Parts who then paid Chip Factory. Because
Best Buy filed this fraudulant claim,
they went after Chip Factory to try and show
these were done fraudulantly. The government
worked with Best Buy to intimidate
and try and scare these people into pleading
guilty but they hung on for justice!!!
The government tried to stop this company
from bringing this insurance company to
trial because finding out that Best Buy filed
this fraudulant claim signed by the head auditor
of Best Buy, the guy who WORKED with
the government to charge these people, would
destroy the governments case! The very
insurance company who fell victim to this
fraudulant claim WANTED to testify at this
trial and the government tried to stop the
truth from coming out and by trying to
do this, was protecting Best Buy!! Is this
large corporate greed meeting corrupt
government at the expense of a 20 year
old company that was started by a woman
out of her basement? Why did the government
send 24 agents 360 miles to raid these
individuals home? No guns, no drugs,
no prior record….just a terrified 6 year
old girl holding onto her mom’s leg as they
ransacked their home for 13 hours! They took
5 small boxes of personal items!! Spent
hundreds of thousands of tax payer dollars only
to leave a 6 yr old girl and their family
destroyed because Best Buy had a “hunch”
that they engaged in a conspiracy, only
to find there was none! The government’s
“star key” sole witness turned his plea
around at trial. One has to ask: would the
federal gov drive 24 agents 360 miles if you
or your “small” business had a “hunch”??
Again, big local corporate influence, Best Buy,
convincing their local Feds in Minneapolis
to intimidate this family!! This trial proved
all of this. When the government’s witness
turned on the government, the handwriting
was on the wall.