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UAW bolsters financial controls after embezzlement scandal

The United Auto Workers union has replaced its auditing firm, added four internal auditors and has hired a big accounting firm to study its financial controls in an effort to prevent embezzlement and bribery discovered in a federal probe of the union.

The moves announced Monday by Secretary-Treasurer Ray Curry come after last month's resignation of President Gary Jones, who has been implicated in the scandal. Several other union officials have been charged or implicated in the probe, which embarrassed the union leadership and angered many of its 400,000 members when it became public starting in 2017.

Curry says the reforms will put checks and balances in place to prevent financial misconduct.

"This top-to-bottom assessment of our financial and accounting procedures and policies will result in a stronger and more stringent financial oversight of all expenditures," Curry said in a statement Monday.

The new auditing firm, Calibre CPA Group of Bethesda, Maryland, which specializes in labor union accounting, will check the UAW's finances for the past year. In addition, the Deloitte accounting firm will look into accounting and financial processes.

The scandal exposed weak financial controls at the union, which allowed a bribery scandal involving Fiat Chrysler's joint training center with the union. Also exposed were embezzlement of hundreds of thousands of dollars in the purchase of 58,000 watches for union members by the UAW-General Motors training center, and an embezzlement scheme at a union regional office in St. Louis involving the purchase of thousands of dollars of expensive cigars and booze, golf greens fees and rental of swanky villas for union leaders. Funds allegedly were falsely represented as regional conference expenses.

Stronger financial controls will help, but they can be evaded, so they must come with cultural changes, said Shivaram Rajgopal, professor of accounting and auditing at Columbia University's business school. "It's pretty easy to get around controls," he said. "Culture is what you do when nobody is looking."

Rajgopal said it's likely that fraudulent expense reports went to lower-level people in the UAW accounting department, who probably suspected something was amiss. But lower-level workers have to worry about keeping their jobs if top officials are involved, he said.

Nonprofit organizations such as unions don't have as many eyes on the finances as corporations, making embezzlement or bribery more likely, Rajgopal said. Companies, he said, have a board audit committee, stock short-sellers, equity analysts and institutional investors looking at the books.

The federal probe brought an unprecedented lawsuit from General Motors last month against Fiat Chrysler, alleging the company bribed union officials to get lower labor costs than GM. Fiat Chrysler says the lawsuit is meritless.

Under the reforms announced Monday, the union hired four additional internal auditors, and it's reviewing financial training for all accounting employees.

The reforms come in addition to changes announced by Acting President Rory Gamble. Last month he banned contributions from employers and vendors to charities run by union officers and hired an ethics officer to handle misconduct complaints.

They come a day after Matthew Schneider, the U.S. Attorney in Detroit who is heading the UAW investigation, said in a newspaper interview that a federal takeover of the union is still possible due to corruption. Schneider told The Detroit News that he was unhappy with the UAW's lack of cooperation, and he raised the possibility of federal oversight.

UAW spokesman Brian Rothenberg said that Gamble has put reforms in place after just three weeks as acting president. "The UAW continues to cooperate in turning over any and all records requested by the federal government," he said.

Jones, who stepped down as president last month, was the regional director in St. Louis before taking the union's top spot. He has not been charged, but his home was raided by investigators in August.

His attorney, J. Bruce Maffeo, said that all expenses for regional conferences were reported in detail and never questioned by the UAW accounting department or executive board.