A former divisional merchandising manager in charge of Home Depot's hard flooring products was sentenced to 63 months in prison for tax evasion and wire fraud, and ordered to pay $1.1 million in restitution to Home Depot. You can read the brief blurb about it here.
He is one of three former executives who have pleaded guilty to receiving millions of dollars in kickbacks from foreign suppliers in return for placing their products in Home Depot stores across the nation.
The article does not detail the scheme, but instead focuses on a lavish lifestyle the extra cash in pocket enabled the manager to lead. For the uninitiated, let me tell you how it happens.
A buyer in a national or even regional chain store controls millions of dollars worth of purchasing power. He is responsible for choosing suppliers, wherever they may be, and ensuring goods in his department are competitively priced, of sufficient quality and delivered on time. The buyer is paid a static wage which appears puny in comparison to the amount of purchasing power he wields through his organization.
Buyers on the take generally expect 1% of the total value of order to come back to them. A buyer who controls $25 million of annual spending can rack up $250,000 a year, and many become quite wealthy over time. If he doesn't get caught...
The convicted individual lived life a little too obviously large:
...more than $1 million in cash, luxury cars and real estate...including $269,000 to a California real estate development firm that sold Robinson two Tennessee properties, $135,000 in deposits to Robinson's investment accounts, and funds that paid off Robinson's loans on a 2004 Cadillac Escalade and a new Infiniti sports utility vehicle.
Who pays the 1%? Not the seller, because he adds that 1% to the value of the order. The buyer's company ends up paying. Business acquaintances have told me several buyers demanded currency, so that there be no trace. (One factory owner I knew gave his buyer a birthday card loaded with cash while singing, "Happy Birthday!") The payoff is expected before the order is placed. Simply because the payoff is made does not allow the seller to provide shoddy goods. One is given no quarter. There is such competition to get product into an established distribution channel that a deadbeat supplier will be dumped and a paying, hungry, effective supplier found quickly enough.
Management suspects buyers of being crooked. (Years ago, one buyer I knew told me "They suspect me even if I am pure, so why don't I just go ahead and do it?" I thought it pointless to suggest the benefits of uprightness to him) Some companies, especially those with experience, shift buyers from department to department every few years and engage investigative services in an attempt to ferret out dishonesty.
Executives with any intellect know what's going on. I am reminded of the CEO who said to me over drinks, "Bob X in Purchasing just bought a new house in that subdivision. Son of a b--- must be on the take. Didn't he just buy a Caddy, too?"
Purchase from overseas manufacturers enables greater camouflage, such as overseas bank accounts in false names, the establishment of trading companies which masquerade as the producer (sometimes established with buyer capital) and gifts bestowed in overseas venues (gold coins, women, gambling forays, etc.).
The "savvy" buyer who is on the take does not disclose his relationship to any but the one decision-maker in the organization from whom he is taking his payoff, refuses to discuss payoffs in close quarters even with that executive (preferring a space where he cannot easily be recorded) and makes sure his department is extremely profitable.
It is surprising how few are caught and publicly made an example of. Partly, management may prefer a simple termination rather than arrest, the publicity and the negative implications for their control over staff. But even if management discovers the buyer's fraud, it may choose to keep him on, considering the 1% simply as another expense. Yes, I have known this situation to have actually occurred, and can only assume I gained a glimpse of a more general practice.
