Ethical Dillema 1943

  • I work for a priviately held (Private Equity) engineering firm whose business entails selling services, products and large turnkey projects. On one of the latter type programs, a USD2,000,000 cost overun was uncovered in mid-December.
    This represents a huge impact to projected EBITDA numbers for 2007. This Wednesday is an important Board meeting and acurate cost collecting will be on the agenda due to a similar overun on another project.
    This USD2,000,000 issue is not on the agenda or in the Board package and several officers including our President wishes to keep this quite. I believe year-end bonuses motivate this as well.
    Is this issue a candidate for SOX? I am compelled to inform the board due to the ethical issue at hand.

  • This is a big ethical issue. However, it is not a SOX issue as you indicate that the company is privately held. The SOX provisions only apply to public companies.
    In reality, what you speak of is FRAUD as the officers are knowingly and wilfully presenting inaccurate financial reporting is a signifcant genuine overrun exists.
    Warning, be careful how you handle this with the board. I am sure you will not be thanked and the SOX whistleblower protection will not apply here.
    Other strategies might include a ‘quiet word’ with the auditors.

  • I agree with Denis’ good comments and that as a non-public company SOX regulations would not be applicable. However, even private firms are subject to audit controls. The truth also has a way of ‘catching up’ with folks eventually ( Below is an example noted in the forums, where it’s better to be honest at all times:
    [b]Employee Expense Reporting thread[/url]
    If you are obligated to report this to the board based on your position or role in the company, all I can say is to wish you the best of luck and be prepared for the worst as Denis had shared. Also, maybe if this could be brought to the attention of senior management and worked out ahead of time, it’s far better for everyone concerned. I hope that this won’t impact your employment in any manner. Best of luck 🙂

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