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NextGen Magazine

 
 

An inconvenient truth

By:
CHRIS GAETANO
Published Date:
Jun 1, 2013

The average CFO doesn’t typically jump into a van and start doing surveillance. Brian S. Aryai, a member of the NYSSCPA’s Nassau chapter, would be the first to tell you that. Yet in 2008, as a senior financial executive for one of the largest construction companies in the world, Aryai found himself parked outside a worksite, surreptitiously taking notes on the crew. It was part of his ongoing effort to gather evidence of a billings fraud that he suspected was being perpetrated, not just within his own company, but across the industry. Which reflects another truism he’d share with you: Sometimes, convention gives way to circumstance.

The days, months and years that followed have all the makings of a Hollywood drama: Aryai would eventually blow the whistle on the largest fraud ever recorded in the construction industry, triggering criminal investigations and a multi–million dollar settlement. Yet, the decision to speak up wasn’t without consequence. On paper, or in the confines of a classroom, doing the right thing seems simple; in real life, it can be scary. “Actually encountering it and having to make decisions in real time is a little different,” Aryai said. “It’s not like a textbook, where you can go back and read and reread and revisit. You’ve got to act quickly.”

Though Aryai describes himself as “battle worn” by the events leading up to and following his revelations, he said that speaking up was the right thing to do, and if he had the chance to do it all over again, he would. CPAs, he said, rank high with the public because of their insistence on ethics and objectivity.

“Financial executives don’t wake up in the morning and decide they’re going to become a whistleblower,” he said. “It’s a very traumatic event, but a critical one.”

A crash course
In 2008, Aryai was hired as the controller and senior vice president of finance for Lend Lease Project Management & Construction (formerly known as Bovis Lend Lease LMB, Inc.), the prestigious Australian firm that built the 9/11 Memorial in lower Manhattan and the Mets’ CitiField stadium in Queens.

In the past, he’d held top positions at firms and companies such as Cablevision, where he was vice president of internal audit, and Grassi & Co., CPAs, P.C., where he was partner-in-charge of consulting. But his background also included a 14-year stint as a federal agent employed by the Treasury Department to investigate white-collar criminal activity. It was this mix of experience, he said, that led Lend Lease to ask him to join the company. It was also what led him to eventually spot the fraud, investigate it and notify the authorities.

Aryai said he first became uncomfortable when he learned about the industry-wide practice known as “gratis pay,” or “8 + 2,” in which labor foremen are given two hours of extra overtime as a matter of course—though they never actually worked them. After asking around, and monitoring Lend Lease’s crews himself, “it was clear that it was an everyday event,” he said.

One would think that a company would be relieved to discover fraud and immediately put a stop to it. But when Aryai went to fellow executives within his company as well as peers outside of it with concerns about serial overbilling, he found that this wasn’t the case. Instead, he said, his inquiries were met with suspicion and defensiveness. 

“People would ask me, ‘what’s your problem?’” he said. “They were going through hoops to try and tell me this isn’t criminal activity, that this is something that’s done and is the common practice.”

Aryai compared his attempts to reason with colleagues to trying to tell someone that the sky is blue and having them tell you, without flinching, that, no, it’s purple. 

“These were not unintelligent people,” he said. “But they would argue the point over and over that what was being done was OK, and that it would be best if I just ignored it.”

Before he discovered the fraud and went to the authorities, Aryai said he’d enjoyed his position at the company, where he managed approximately $3 billion in revenues. But from the time he first began inquiring about “8 + 2,” until the moment he was unceremoniously “laid off ” in the spring of 2009, he said he faced a campaign of resistance.

“Every imaginable tactic was used to obstruct me from correcting the issues,” he said, noting that whistleblowers, in general, face everything from colleagues trying to undermine their efforts, to smear campaigns that try to paint the whistleblower as the source of the problem. “It’s a very lonely place to be. And it’s one that I hope to never be put into again.”

Aryai eventually alerted the United States Attorney’s Office for the Eastern District of New York and the FBI. Last April, the company admitted to having committed the fraud from 1999 to 2009 and agreed to pay $56 million in fines and restitution. Investigations into other companies within the industry that are suspected of also committing the fraud are still pending.

Aryai said that while he didn’t get a hero’s welcome from his company, he is grateful to have had support from his staff, friends and family, and his old law enforcement colleagues, all of whom helped keep his spirits up during the process.

Because, at some point, he said, “you have to leave 26 Federal Plaza [the FBI’s location in New York City] and go home and think about what just happened.”

Creating a new reality
After being laid off from Lend Lease, Aryai started Icon Compliance Services, a compliance consultancy firm, with former New York Gov. David A. Paterson, and serves as its CEO.  He said he helped found the firm partly to counter the “long entrenched entities that sell their services as compliance consultants and integrity monitors,” but nonetheless look the other way when it comes to incidents of fraud—like the ones he said he encountered in the construction industry.

“It was interesting that these monitors, who sell these services, were posted at the job sites I reviewed,” he said. “It was impossible for me to digest how they could close their eyes to the omnipresent and inescapable presence of fraudulent activity.”

Given his experiences as a high profile whistleblower, he acknowledged that there will be companies that don’t want anything to do with him or the services that his firm provides.

As far as “companies with owners and executives that are part of the crime and problem, I do not get those calls,” Aryai said. “They will never come to me. I get hired to do projects by companies who want to genuinely clean up their act.”

Calling out Fraud: What a young CPA should know
Though confronting fraud can be a daunting prospect, Brian S. Aryai urged young CPAs not to be afraid of speaking up, however scary it might be at the time. “If someone is just starting their career and they witness activities of a questionable ethical nature, my advice would be to find someone trustworthy high up in the company—be they a board member, the CFO, the general counsel or someone on the audit committee, if it’s a public company, and talk to them about it,” he said.

The Securities and Exchange Commission (SEC) bolstered its own whistleblower rules and procedures as part of the Dodd-Frank Act, with final regulations approved in 2011. Under the new rules, people who witness violations of securities law can go directly to the SEC with information. Before, they were required to address the matter internally before going to regulators, although the SEC still encourages people to do so.

To be considered a whistleblower under the SEC’s rule, a person must voluntarily provide the commission with original information that leads to a successful enforcement action on the part of the regulator, resulting in monetary sanctions that exceed $1 million.

To submit information as a whistleblower, one should either fill out the appropriate form on the SEC’s website, or file a Tip, Complaint, Referral (TRC) form and mail it to the SEC’s Office of the Whistleblower. People can choose to submit anonymously, but the information would need to be submitted by an attorney, who would retain a copy of the original signed submission on behalf of the whistleblower.

Not only is coming forward the right thing to do; the risks for looking the other way can be high. Speaking at an NYSSCPA panel on fraud last October, Walter Mack, Esq., a former assistant U.S. attorney for the Southern District of New York, said that because accounting professionals are closer to the numbers than other executives, they can’t plead ignorance about fraud the way their colleagues sometimes can. “While the CEO can say, ‘I relied on my CFO,’ the CFO is going to have a hard time denying he or she didn’t know what was going on, because he or she will have had the resources to investigate,” he said.

Resigning wouldn’t necessarily protect an accounting professional whose company has engaged in fraud from being caught in a prosecutor’s crosshairs either, he added. “It depends on how much you know, how long you’ve known it and what steps you took to rectify [the situation],” he said.

In the end, Aryai said, go with your instinct and act on principle. “Because if you just turn your head the other way, there’s no guarantee you don’t become part of the problem,” he said. “And then there’s no coming back once you cross that line.”