The Children’s Hospital of Philadelphia Embezzlement Case: Did They Miss Red Flags?

The stunning indictment and guilty plea of Roosevelt Hairston Jr., the former general counsel and executive vice president of Children’s Hospital of Philadelphia(CHOP), for embezzlement gives us pause. The pause comes from the fact that the embezzlement amounted to $1.7 million and was carried out over a 12-year period (from 1999-2011). That’s about $150,000 per year. Not bad work if you can get it, especially when you consider that Mr. Hairston’s salary topped $700,000 as of 2009.
How did so much go on for so long? The case is instructive for internal auditors in terms of using those soft clues in order to maximize their ability to ferret out thieves and hustlers.
1. Those Invoices and Vendors
The indictment indicates that all the funds were obtained using just 93 invoices over the 11-year period. That’s a chunk of change per invoice, and invoices of that level deserve some follow-up.
The indictment also indicates that the invoices were submitted by fake firms, firms created by Mr. Hairston for experts and outside counsel for the hospital’s litigation. Verifying the identity of those firms and the recipients is critical. In at least one instance, the internal auditors at CHOP did follow up with the alleged vendors, but Mr. Hairston stole the identity of a friend in order to use an e-mail to assure auditors that he was indeed the vendor and had indeed performed the services. However, the e-mail follow-up is in itself a lesson – anyone can e-mail. A face-to-face meeting, including a visit to the vendor’s office would have been in order.
That Mr. Hairston alone could submit the invoices for payment indicates a fundamental weakness in internal controls.
2. Oh, That Lavish Lifestyle!
Mr. Hairston had a yacht with a full-time captain, a 10,000-square-foot home, and staged party after party. And there was a stable of cars that would make Jay Leno blush. That level of spending is worth a look-see into accounts by internal auditors.
3. Those Investments!
The need for cash on Mr. Hairston’s part increased as his real estate investments went south. Those
complicated personal portfolios and activity there are things to watch, or at least clues as to one of the segments of the triangle of fraud – need. In this case, it was the need for cash.
4. The Generous and Philanthropic Soul
In a classic lawyerly line at Mr. Hairston’s guilty plea, his counsel noted that Mr. Hairston used the yacht primarily for raising money for the hospital and other charities. His counsel noted that his motive was not greed. Ah, when you take money in order to set the stage for raising money for charity, well, it’s different.
By all accounts, however, Mr. Hairston was a model Philadelphia citizen when it came to charitable causes. However, history has taught us that where there is a generous executive, be afraid and look more closely. Here’s a partial list of history’s most generous corporate titans, all of whom were convicted or entered guilty pleas to felonies.
• John Rigas (Adelphia)
• Bernie Ebbers (WorldCom)
• Dennis Kozlowski (Tyco)
• Jeffrey Skilling (Enron)
• Ken Lay (Enron) (his guilty verdict was vacated because he died pending its appeal)
• Bernie Madoff (Madoff Securities)
• Richard Scrushy (HealthSouth)
• Tim Donaghey (NBA referee)
• William Aramony (United Way)

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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