Best Buy Finds a Good and a Bad Employee.

Here is a great article written by Kathleen Edmond. The real life story is about Best Buy Ethics, and how one employee can make a huge difference; for good or bad.

Best Buy recently earned some rather embarrassing publicity in a federal court case regarding a M fraud scheme involving one of our employees and a vendor. The employee plead guilty to federal fraud charges and the vendor was convicted in federal court early last month. Beyond the PR hit, and the financial impact of the fraud, Best Buy was forced to take a hard look at its internal controls and policies and the leaders responsible for them.

The details of the case are readily available on the Internet (simply Google “Chip Factory Best Buy”) but I am most interested in the ethical implications and the power that an individual employee can have on a company – whether for good or bad. The “good” in this case was Matt Dickinson, a manager on our Repair Services team who supports our parts acquisition business. This is Matt’s story.

Curiosity, persistence and a little good luck

Back in early 2007, Matt Dickinson – a long-time employee of Best Buy – was digging into a new role supporting Best Buy’s online parts auction. The company had recently hired an independent third-party agency to facilitate an innovative parts bidding system through which Best Buy purchased computer repair parts on the open market from numerous suppliers. A sort of “reverse eBay,” the auction system enabled Best Buy to quickly and efficiently source the parts needed for computer repairs around the nation, all while theoretically obtaining the best pricing the market would bear on that date for that specific part.

While doing routine research, Matt stumbled upon a ,500 variance in the payments made to a particular vendor participating in the auction. According to his reports, The Chip Factory had billed Best Buy ,500 more than the sum total of their winning bids in the parts auction that month. Matt passed this information along to his co-worker in charge of Best Buy’s relationship with The Chip Factory. Matt was told that it was an honest mistake and would be addressed.

Several months passed when Matt was doing more research into auction results. In doing so, he discovered an invoicing error on the part of one vendor that resulted in large discrepancies in their billings to Best Buy. When shown the data, the vendor was greatly embarrassed by the mistake and immediately repaid Best Buy for any cumulative excess billings. The discovery made an impression on Matt, however. “It occurred to me that there was the potential for a lack of control in this portion of the auction system. I figured if this mistake could go unnoticed here, it could happen elsewhere.”

Matt decided to run a variance report across all vendors participating in the auction and quickly saw a familiar name – The Chip Factory. This latest report showed The Chip Factory had billed Best Buy 5,000 more than the total of their winning bids that month. Again, Matt passed the information to his neighbor, Bob, who pledged to get to the bottom of the issue with his vendor partner. This time, however, Matt also approached a co-worker who understood the complexities of the auction billing system better than he. This co-worker gave Matt some alarming news; when multiplied by the total quantity of parts purchased through the auction, the excess billings levied by The Chip Factory that month actually exceeded .7 million.

With the stakes suddenly much larger, Matt requested a similar variance report dating back 18 months. To his horror, it showed that The Chip Factory had consistently overbilled for parts – a variance now totaling tens of millions of dollars. Alarmed but not ready to accuse, Matt checked and rechecked his work. “I verified the numbers many times and in many different ways. It all added up to one conclusion. Somehow, it appeared The Chip Factory had identified and exploited a blind spot in our system that enabled them to selectively over- and underbill us in a way that hid the fact that they were wildly overbilling us over the course of a month.”

At this point, Matt engaged Best Buy’s Legal department, Internal Audit and our Asset Protection specialists. Not wanting to jump to conclusions, Best Buy hired a highly regarded “forensic accountant” to research the auction data. The ensuing investigation quietly continued for more than a year with everyone wondering what had happened. No one, not even Matt, imagined that Bob – the employee in the cube next door – might somehow be involved.

Several weeks later, the truth hit the front page of the newspaper. Bob had been indicted on charges stemming from an investigation carried out by the FBI, U.S. Attorney’s Office and the U.S. Postal Inspector. Bob eventually admitted to Federal investigators that he had accepted more than 0,000 in cash, a motorcycle and other lavish gifts from The Chip Factory in return for enabling the fraud against Best Buy. The husband and wife owners of The Chip Factory were subsequently indicted and convicted at trial, and all are currently awaiting sentencing.

Clearly, the implications of this story are enormous. By simply doing his job and asking questions, Matt uncovered what will hopefully be the largest (and last) fraud ever committed against Best Buy. When asked what advice he has to share with others, this is what Matt said:

* “Openness is critical. If you have an environment where anyone can talk to anyone, it enables non-threatening conversations to happen.”

* “Trust your instincts. If something does not smell right, do your homework, investigate and don’t stop until you get a clear answer either way.”

* “Know the business. All the signs were there if we just knew to look for them. Clearly, not enough controls were in place in the auction system in those days relative to the risk to Best Buy.”

* “Listen to the people around you. After the fact, we learned that other employees had asked why we were paying such ridiculous prices for certain parts. As it turns out, they could see something we couldn’t.

* “If someone really wants to rip you off, there is not much you can do to prevent it. No one goes to work thinking the person in the next cube could be capable of something like that, but it’s true. All of the controls in the world cannot eliminate the possibility that a trusted partner might be looking for ways around those controls.”

So, is Best Buy any different today than it was in 2007? From his vantage point, Matt has seen significant changes:

* “The entire culture of my department is different today. It’s very transparent and we are completely open to discussing issues now. Before this happened, our culture was extremely territorial and not welcoming of disagreement.”

* “We have a sincere ‘open door’ mentality now. People can talk to anyone they want – up, down or across the department. That kind of access and trust didn’t exist before.”

* “Leaders focus on assigning roles to people based on their natural strengths so the best talent and the best ‘fit’ is in every job.”

* “Best Buy’s Gifts and Gratuities policy is much more conservative. Today, you might get an occasional business dinner at a local restaurant. Extravagant dinners and entertainment are out.”

* “Of course, we have much more rigorous controls on everything now. Every process is scrutinized to make sure it is as tight as possible.”

Learning from our mistakes

As painful as this episode has been for Best Buy, it has enabled enormous growth. The balance between trusting the humility and integrity of the people around us and the need for healthy professional skepticism has become much clearer. What have you learned from this story?

1. Which was more troubling to you? The actions of The Chip Factory or that of the Best Buy employee who assisted them? Why?

2. Does your team have the kind of “open door” culture that Matt described above? If someone suspected an ethical issue on your team, would they feel free to talk to anyone – up, down or across the department? How can you be sure?

3. Have you ever seen a situation where “territorial” leadership behavior created an environment where unethical behaviors went unchallenged? What did you do about it and how did it turn out.

4. Do you think entertainment, gifts and other business courtesies from vendor partners are always OK, never OK, or somewhere in between? If the latter, where would you draw the line?


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