My CEO is spending money we don’t have and hiding it from the board. Should I report it?
The following article is from the prestigious American publication Ind.com, which specializes in small and medium-sized businesses and all the latest on leadership, new technologies, marketing, HR, and more.
The author is Inc. contributing editor Minda Zetlin, author of Career Self-Care: Find Your Happiness, Success, and Fulfillment at Work. She speaks and writes about productivity, confidence, mindfulness, and how to have a career you’re passionate about without feeling miserable.
Reporting it makes you a gossip. Hiding it makes you an accomplice. What’s the right decision?
Do you have a question about work ethic? Inc. contributing editor Minda Zetlin addresses the toughest dilemmas of what to do.
A Reddit member writes:
I told my CEO that we couldn’t afford his expansion plan and, worse, that we should stop hiring for open positions and consider layoffs.
He refused and told me to just go ahead and see how it went. Clearly, he was talking nonsense.
At the next Finance/Audit committee meeting, I had to hide and disguise the finances so as not to make him look bad.
A board member raised a very pertinent question, and he stepped in to cover it up.
Minda Zetlin responds:
It’s a dilemma. You’ve already shared your concerns with the CEO, and he’s dismissed them. Ignoring his opinion will make you look like a gossip.
You’ll make an enemy of your company’s leader. That might not end well for you.
But if you continue covering for the CEO, it definitely won’t end well.
If the company’s financial situation is as precarious as you say it is, it could be forced to close, in which case everyone would lose their jobs, including you.
Even if the situation isn’t that dire, sooner or later the financial deception will likely come to light.
They might blame you. In fact, you’ll bear some of the blame if you continue to help hide the truth.
Therefore, it’s the right and smart thing to do to make sure the board knows what’s going on.
One option is to tell the CEO that you’ll no longer cover for him. Give him a chance to come clean with the board and tell him he must do it soon.
This approach carries risks, of course.
The CEO might retaliate against you instead of admitting to his deception, and you could end up without a job, or worse.
The other option is simply to go directly to the board.
Your decision may depend on your relationship with the CEO and how much you respect him or her. It may also depend on whether you want to continue working with him. Overlooking his situation in this way will likely end your working relationship for good.
«I had to decide whether to call me stupid or a liar.»
The Reddit user didn’t want to continue working with the CEO.
So they contacted the board member who had asked the question about finances and explained what was happening.
«I had to decide whether to call me stupid or a liar based on how things were progressing to cover for my CEO,» they wrote.
They were pleased that this board member was asking the tough questions.
«Board governance is crucial,» they told Inc.
«The fact that it’s perfunctory in most places is a mistake.»
The Reddit member resigned shortly after this incident.
The CEO was fired six months later.
«I’m sharing this so that those in leadership positions reflect on the meaning of their ego and their actions,» they wrote.
It’s a lesson for any leader who considers manipulating figures and for any employee who is asked to help cover it up.
What would you do if your CEO or partner asked you to cover up financial mismanagement?
I’m struggling to deal with my CEO, who has questionable expense reports. Any thoughts?
The following contribution is from the Proformative portal, a trusted resource for financial professionals operated by Informa TechTarget, a leading business journalism company that provides information to more than 11 million decision-makers in the most competitive industries.
The question the portal asks is: Who approves the CEO’s expenses?
Rex Jackson answers. Executive Vice President and Chief Financial Officer
The answer to this question is both simple and uncomfortable.
The finance department is the custodian of corporate funds in all companies, public or private, so when in doubt, investigate, regardless of level or position.
If there is a Code of Conduct, it must be followed. If not, what a Code of Conduct prescribes must be followed.
First, again, investigate. You (or the CFO or even the general counsel, if you have one) should sit down and discuss this directly with the CEO.
If that resolves the matter, and it very well might, great.
If not, the details need to be ironed out.
Once you establish your findings, I recommend filing a note if it’s not material, or escalating the case to the board of directors, investors, or the audit committee if it is, especially if you work for a publicly traded company.
The key here is to follow the investigative and disciplinary process regardless of whether the person involved is the CEO.
In fact, due diligence should be the highest when it comes to a senior official.
Answered by Gregg Kimmer. CFO
The correct answer depends 100% on your company’s corporate structure.
If it’s a family business with the CEO as the founder or sole shareholder, he or she is the one who decides how this money is spent.
Ideally, you’d have the opportunity to confront the CEO about these expenses, but the CEO could also tell you to «shut up and go away.»
Alternatively, if several shareholders should be aware of these expenses, if you decide to resolve the issue directly, you should speak to the CEO.
If you opt for an indirect route, you can indicate in the monthly summary to shareholders that there are «outstanding expenses» on the books.
This could trigger a sudden surge in questions.
This allows you to delegate the uncomfortable task of questioning the CEO to others, rather than having it fall solely on you.
David Cole answers. CPA (accounting expert)
Wouldn’t the IRS frown upon it? And if it did, it could criticize the treatment by simply disavowing the expenses, or worse, calling them dividends (double bashing).
Plus, there’s always the tone you set. Do you allow the CEO to commit expense murder and force everyone else to follow suit?
Double standards never work… at least not that I’ve ever seen.
From experience, I recommend a direct approach with your CEO if you report directly to him/her.
If the report isn’t direct, enlist the help of the CEO’s chief financial officer.
With a direct approach, explain how the reports are presented (the reason you’re questioning them) and suggest options for improving them.
Include your feedback in your fiduciary responsibility to the company and its owners.
The CEO’s reaction will tell you if further action is necessary.
I suggest this direct approach only between the two of you because you’ll need to work closely with the CEO, and ultimately, you need his or her respect.
He or she may not appreciate the challenge at first, but will eventually change his or her mind, especially if his or her attitude or approach doesn’t change after such a frank conversation.
Be as positive and open as possible. Hopefully, you’ll be able to pull this off and leave the door open to other options.
If the reaction is negative, close the conversation by saying something like, «Look, I know this comes as a surprise to you, and I only have good intentions… maybe we should end this conversation after you’ve had a chance to absorb my reasons for bringing it up.»
Denise Odette. Project Leader
I’m assuming this question is coming from a controller or a CFO.
Both positions have a responsibility to protect the company’s assets.
If the actions clearly violate the company’s travel policy or IRS requirements, the controller must act to protect the company’s assets and protect it from violating tax regulations.
Furthermore, if other company employees are aware of this behavior, ignoring it creates a bad impression on senior management and may encourage inappropriate behavior by other employees.
However, it is their first responsibility to ensure their suspicions are valid.
Few travel and expense policies, and no government regulations, prohibit reimbursement for «absurd and excessive» expense reports if documentation and management authorization are provided.
If company policy allows reimbursement, a controller may be required to issue the expense reimbursement.
This would not prevent the controller from attempting to appeal the CEO’s liability.
Such an appeal would likely be ignored, but the controller’s role is to provide sound business advice.
In this situation, it would not be easy, but it may be necessary.
Simon Westbrook. CFO
An obvious question is «Who approves the CEO’s expenses?»
There should be a system of checks and balances so that everyone’s expenses are independently reviewed and approved, ensuring compliance and reasonableness.
In the case of the CEO, the only logical source of approval would be the Board of Directors.
If not, I suggest your approach is to advise the Board of Directors on the need for accounting controls and procedures to satisfy audit requirements and risks, and get them to approve the CEO’s expenses.
This would give you the advantage of attributing your reasoning to the need for controls, rather than suspicions of fraud.
If the Board of Directors already reviews but doesn’t intervene in questionable expenses, or if it doesn’t adequately review when such a policy is introduced, the option of meeting in person with the CEO should be pursued.
Another idea: Make sure the wording of your expense reimbursement request form is very specific.
If the expense form only requires a signature, the CEO might interpret it as, «Yes, these are the expenses for which I am requesting reimbursement.»
If you sign next to a statement like, «I verify that the above expenses were incurred wholly, exclusively, and necessarily for the benefit of the company,» you may need to think a little more!
Jim Schwartz, Corporate Finance Advisor
I joined a company and discovered that one of my subordinates was manipulating expenses.
It’s not as difficult as your challenge, but the issues are the same.
Many good comments already. Also, consider implementing a policy of periodic, random audits of expense reports, perhaps a task for the internal audit team.
This policy is consistent with the «trust, but verify» philosophy.
Too often, unless there is a reason to examine or investigate travel and expense reports, they receive only a cursory review (or none at all) and are simply approved.
My Employee Is Too Budget-Oriented and Gets Nervous When We Spend Money
The following post is from the Ask a Manager portal, a prestigious blog founded by Alison Green. She defines herself as follows: When I started this blog, I was the chief of staff for a successful nonprofit organization, where I was responsible for hiring, firing, promoting, managing, etc. Now I consult on the same topics I write about here.
A reader writes:
I have a low-level employee who has always volunteered for nonprofits and worked in academia, and I would love some tips to help him change his budgeting approach.
He’s very used to saving every penny the organization requires, at the expense of a considerable amount of his time, which makes sense if money is tight and the time is volunteered, but makes no sense at all if money is plentiful and the time is paid.
I’ve explained the difference between price tag and time cost (multiple times, in various ways, with multiple examples), and yet any amount of money over $50 basically sends him into an anxiety spiral where nothing I say has any effect.
I’m willing to close the topic the next time I open this conversation, as it’s been explained from every angle and is of no use, but I need him to be able to see how the company spends money on (for example) office supplies, IT infrastructure, furniture, advertising, etc., without panicking or suggesting ways to save small amounts that require a lot of effort and a high salary cost.
(For what it’s worth: he doesn’t come from a poor family, so the financial anxiety seems entirely work-related. He also talks about having anxiety but refuses to seek treatment.)
Is there a way to frame this that might be relevant, given his work history?
I’d rather foster understanding than simply close the topic, but for now I’ve done what I can think of and will close it and close it if necessary.
I responded and asked, «When you talked to him about it, did you explicitly tell him he should stop, or were you trying to explain why it was unnecessary? And how directly related is his job to money or shopping?» The answer:
About 15% of his job involves researching options or solutions to our problems (for example:
finding me an email system that can do the following four things, or finding me companies that sell this specific thing and scheduling demos), or interacting with outside vendors (and therefore overseeing the flow of invoices).
The rest of his job isn’t directly related to money.
I’ve talked with him about why certain expenses are necessary and also about how this pattern is unsustainable, something he agrees with, even if it’s not something he’s actively concerned about.
But then, as soon as something new comes up, he says he’s anxious for a specific reason, and the spiral resumes. He agrees when I say something like, «The company’s finances are well managed. Spending more time saving isn’t efficient or profitable, and the company’s expenses are planned and approved, and I need you to understand that and manage your feelings about spending. I can’t have this conversation every time we buy something. It’s a problem.»
But as soon as something comes up, he genuinely believes we don’t understand that there are cheaper options, and even when the original conversation is pointed out to him, he doesn’t connect it to his behavior;
Basically, he switches from «I’m doing the money thing» to «My boss isn’t listening to me and is going to ruin the company!
ANXIETY!» And I’m like… Whoa!
It’s a spare office chair. It’s a mid-range office chair, not even luxury!—a total turn-off, even when I point it out.
And then there’s the fact that when he’s not actively anxious, he’s good at his job. But the spirals are ruining him.
At this point, unless he’s moved to a position where he has zero financial knowledge, I’m at breaking point.
Well, you did the right thing: you told him this is a pattern, unsustainable, and that he needs to stop. Often in these situations, when I ask a manager how direct they’ve been about a problem, it turns out they haven’t been that direct.
They say «You really don’t need to do X» or «It would be great if you could try doing Y,» but they don’t directly say «X is a serious problem, and I need you to stop doing X.» But you already said it, so we can cross it off the list.
Since you did and it’s still happening, it’s time to talk to him again and this time go further.
Your message this time should be:
«We’ve talked about this before, but it keeps happening. It’s disruptive and preventing you from doing your job effectively. It’s become a serious issue, to the point where we need to consider whether or not we can keep you in this position. Therefore, I want to make sure you’re absolutely clear about the behaviors you cannot continue. You cannot (insert specific behaviors here). Are you okay with that going forward?»
You could also say:
