When Philip Crosby was pulled out of the conference room, the news was disturbing: it seemed $250,000 was missing from the company's account. But by the time the company was finished counting, close to a million dollars was gone.
IN 1985, JOHN C. NELSON FOUND THE PERfect job. Philip Crosby Associates Inc. (PCA) hired him to serve as director of finance in the consulting firm's new international unit. During its first year, the division had posted $2 million in sales, and management expected that figure to double in 1985. "We needed a person to keep us out of trouble," says president Larry McFadin.
After an exhaustive search -- all PCA searches involve at least a full day of interviewing for a handful of finalists -- eight executives agreed on Nelson. He had an M.B.A. and an impressive grasp of the technicalities of the international marketplace. The personal chemistry clicked. "He seemed like the kind of honest individual we'd want to hire," says Steve Balash, vice-president of human resources.
But John C. Nelson wasn't an honest individual. He wasn't even John C. Nelson.
HIs real name was Robert W. Liszewski. After six months of studying PCA's ledgers, he set up a dummy company and began stealing money, as much as $80,000 at a time. He got away with nearly $1 million and was caught only by accident. Police believe he had bigger plans. "The betrayal of trust was the hardest part," says company founder Philip Crosby, 61.
Trust, after all, is the core of Crosby's business. Years ago, he began preaching that quality was the only way for U.S. companies to remain world-class competitors. Instead of having to repair so much, managers should aim to do it right the first time.
Then came Quality Is Free, or rather, then came 1979, when manufacturers began taking a licking from the quality-conscious Japanese. Crosby's book, which showed that producing error-free products could be profitable, sold 1.5 million copies. Confident that he had found his audience, Crosby gave up his job as corporate vice-president at ITT and started PCA in Winter Park, Fla. Fortune 500 executives trekked to his Quality College, paying as much as $1,800 each to spend a few days with Crosby or one of his disciples. Between 1980 and 1984, PCA grew at a compound annual rate of 86%, earning the 188th slot on the 1985 INC. 500, and reaching sales of $20 million.
PCA became a unique reflection of its founder's values. The company prides itself on having the sort of supportive and communicative environment in which even Leo Buscaglia might feel at home. Crosby started an employee newspaper when he had only 12 employees. Every month, he presides over a "family council," a cozy get-together for about 170. He even offers a rumor-answering service for employees, all of whom own stock. "You have to have an environment of mutual respect," he says. "If people have pride in working for the company, and feel that it is open and honest with them, they don't steal from it." It's that simple.
Or so Philip Crosby thought, until last March.
Business owners always get upset when they find a theft," says Alan Sklar, president of Creative Services Inc., a security firm. "But the truth is that if they had better internal controls, these thefts probably wouldn't happen."
Security experts say that in most cases of theft, a procedure breaks down or a system fails -- or worse, none ever existed. This is especially true at small companies, where the strains involved in fast growth can leave lots of windows unlocked for a potential thief. Once the window is opened, more is likely to disappear than a typewriter or a dozen reams of paper; with computers and electronic-fund transfers in greater use, thousands of dollars can move out of a company's account with a single keystroke. "I'm sorry to say it," says Sklar. "But you often have to put the blame back on management."
Philip Crosby's company was an easy target for a thief like Liszewski. Revenues were rising faster than a rocket at neighboring Cape Canaveral, the company was expanding its business overseas -- and management controls were always a step behind.
In February 1985, PCA opened an office in Brussels. Company president Larry McFadin saw the need for a financial whiz who could deal with each country's reporting rules and then translate those numbers into U.S. accounting language. "Growth stresses systems," says McFadin. "So we make sure our systems are forward-looking."
At PCA, the future belonged to the man who identified himself as John C. Nelson. Fortyish, with thin, graying hair, Nelson was described by references as rock-solid reliable, with a keen mind to boot. His last employer, for whom he claimed he had worked for seven years, was particularly generous. We were so sorry to lose him, the woman said, and you are so lucky to have him. The glowing reference was provided by Liszewski's wife, Patricia, who was working part-time in that company's personnel department.
Upon moving into his office, Nelson decorated it with an Illinois CPA license which, it was later found, had been created on a home computer.
Nelson's job required him to develop financial controls for PCA's fast-growing international operations. Units in Belgium and the United Kingdom were up and running; France was just coming on-line. What we want you to do, explained James Gunshanan, 38, then chief financial officer, is facilitate the flow of data from those units into PCA, so they can be easily consolidated into the parent company's financial statements. Every month, Nelson was to produce a balance sheet and P&L for each office.
Four months into the job, Nelson flew off to Europe. Gunshanan wanted him to meet his overseas colleagues: the general manager, lawyers, auditors, and accountants who ran the divisions. Nelson also bought some software that, he declared, would ensure a smooth flow of data.
But the meetings and the software didn't help very much. Gunshanan quickly noticed that Nelson was slow in converting numbers from foreign currency to U.S. dollars, not usually a tough task for a CPA. And the monthly reports were up to three weeks late.
After a second trip to Europe produced no visible improvements, Gunshanan's irritation grew. "It's not my style or the company's to sit down like fourth graders and say, 'Here's what you'll do at three o'clock and here's what you'll do at four," he says. Instead, he asked Nelson what he could do to remove some obstacles. But Nelson was hard to read. The overseas managers told Gunshanan they hadn't been able to develop much of a rapport with him. That new guy is quiet, they said; he sticks to himself. Nelson was that way at headquarters, too. He didn't come to many company functions. When he did, he often offered an excuse in order to leave early. Nobody was ever invited to his house, though according to rumor, it was expensively furnished.
