Saturday, December 1, 2007

Has Rudy Heard About the FCPA?

Presidential candidate Rudy Giuliani, a former U.S. Attorney, seems to be getting caught up in what in the private sector would be considered an accounting scandal, including perhaps the misuse of resources for personal purposes.  According to news reports, while Mayor of New York, he began a relationship with his now wife that was kept secret at the time, no doubt due to his being married to another woman.  In accounting for the costs of his police detail, which apparently included personal trips to the Hamptons for meetings and even the assignment of a security detail to his then undisclosed girlfriend, the Mayor's office put the security costs into the budgets of smaller City agencies, such as the Loft Board, rather than attributing them to the Mayor's budget.  There's no claim that money was somehow embezzled or siphoned off, but the accounting is a bit shady.  As discussed in a New York Daily News article (here), the initial reaction from Giuliani's campaign was that this was how these costs had been accounted for under prior Mayors, a claim that was rather quickly rejected by budget officials in the Dinkins and Koch administrations. 

Giuliani's comment on the imbroglio is that "[i]t was a perfectly appropriate set of expenses."  That may be true, but how costs are accounted for is important, and following appropriate internal controls so that expenses are properly reported is key for any business or government.  The Foreign Corrupt Practices Act, which is enforced by the Executive Branch that Giuliani hopes to lead, requires companies to adhere to the following standards:

(A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and

(B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that--

(i) transactions are executed in accordance with management's general or specific authorization;

(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;

Just saying the costs were appropriate misses the point that the bookkeeping can't be fudged and hardly instills confidence in the candidate's focus on the need for accountability in all governmental offices.  Perhaps Giuliani should brush up on the requirements for companies subject to the FCPA's record-keeping rules. (ph)

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