Expenses Fraud and Whistleblowers: A Combustible Mix Ignites at Omnicom

Last Updated Apr 23, 2010 11:20 PM EDT

Two finance executives have filed federal lawsuits against Omnicom (OMC) alleging that expenses fraud and false accounting were "overlooked or condoned" at the ad agency holding company's GMR Marketing, Radiate, and The 11 Agency units, in addition to a partner shop, Banshee Music. The allegations are thin on details -- they don't give an estimate of dollar amounts involved in the alleged dodges -- but they're filled with gossip about the alleged failure of Omnicom's audit team to catch executives who were making up financial numbers as they went along.

The suits are worth reading by human resources professionals too: Management allegedly fired the executives who complained about sharp practices -- making internal fraud prevention procedures completely useless. It's a familiar tale: Companies often prefer to get rid of whistleblowers rather than clean up their acts. But that's a false economy: it places the enemies of management outside the control of the company, where their only friends are labor lawyers.

GMR's former CFO, Virginia Geraghty and a former controller, Laurie Becker, allege that they found four types of improprieties within Omnicom's sports, music and entertainment agencies:

  • Geraghty reported "possibly fraudulent expense reporting they had observed in GMR's Canadian operations" to Omnicom, she claims.
  • She says she was pressured to "adjust" The 11 Agency's balance sheet to make it appear healthier than it was.
  • She questioned whether Radiate's financial control mechanisms were strong enough.
  • And she alleges that GMR was not properly charging sister shop Banshee Music for GMR resources that Banshee was using.
Geraghty reserves particular ire for GMR CEO Gary Reynolds (pictured), whom she accuses of firing her when she refused to cooperate with him during an Omnicom audit. She was so afraid of Reynolds that she only met with Omnicom's accounting people off site, she claims, lest Reynolds find out she was cooperating with the holding company's inquiry into GMR's books.

In one meeting with Reynolds about Omnicom, Geraghty claims:

Reynolds referred to Omnicom's Director of Internal Audit, Greg Governale, as a "communist" and told Geraghty that she should not talk to him.
Omnicom has yet to respond to either suit, both of which were filed in a Wisconsin federal court. GMR's clients have included Jeep, Sony (SNE), Orbitz (OMW), and Pepsico (PEP).

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Image by Flickr user happyeclair, CC. Hat tip to Rick Romell.