One of my former employers has been the occasional subject of this column -- particularly when the topic centered on how not to run a business.
For example, when I first came aboard, that company possessed such an ingrained meeting culture that managers would actually schedule meetings to schedule meetings.
In order to increase efficiencies and controls, a consultant was once brought in and discovered, incredibly, that there were more vice presidents on the payroll than salespeople -- the company’s primary revenue drivers.
Had it been a public company, the entire board and executive team would have been ousted decades ago, along with many in the bloated upper-management ranks.
So when inefficiencies within a corporate framework are unearthed, it rarely surprises me. Invariably, my experience has been that one of the primary causes are internal controls that are either suspect or, in many cases, nonexistent.
As evidence I offer up last week’s highly critical report to Congress on mortgage financing concerns Fannie Mae and Freddie Mac.
Their regulator, the Office of Federal Housing Enterprise Oversight, basically determined that after accounting scandals at each forced the pair to restate a combined $11 billion in earnings over the past several years, the companies remain a “significant supervisory concern.”
The mortgage giants’ progress after the scandals forced the removal of top execs at both and has been fraught by delays and higher-than-anticipated costs, according to the report.
OFHEO said Fannie Mae was impacted by cost overruns on outside IT contractors -- the result of weak supervision. Imagine my surprise on reading that a government agency had exploded its budget, or that supervision was less than diligent.
Fannie Mae was also found to have nearly as many consultants drawing a paycheck as it did employees. In light of the report, one might wonder exactly what those consultants were doing. Because whatever it was, they obviously were not righting inefficiencies or helping shore up controls.
Meanwhile, sibling Freddie Mac was cited for its glacial progress on improving, oh yes, its internal controls, while its ability to manage internal projects such as an ongoing rebuilding of its IT system was “less than effective.”
In fact, the IT project was not expected to be completed until 2008, which, in government-speak, most likely translates closer to 2009.
The report did, however, note that there has been a measure of progress at both businesses, though not nearly enough in scope and within a reasonable time frame.
From personal experience and reporting, I’ve learned that when it comes to breakdowns in controls and efficiencies, the fault lines start cracking from the top and subsequently thread their way down.
Sadly, there always seems to be yet another company that has ignored its internal controls for too long, and like a bad tooth that eventually abscesses, it often erupts into millions in red ink. When that happens, all the overpaid consultants in the world won’t help.
Only the company names change. As for the causes, the song often remains the same.
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