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Subscribe to this list via RSS Blog posts tagged in Corruption

Posted by on in Stories From The Field
Accounting Part 1

This last week I started to write my first serious post dedicated to corruption in Moldova. While I've touched on the subject a bit in my short post about The DMV or the epic saga that was our visa approval process but nothing dedicated to corruption. As you might have noticed from the title of this post this is not such a post. I realized that even starting that conversation was so daunting without certain background elements explained that it was totally unmanageable in scope. I'll try again soon but in the meantime I decided it was time to share a glimpse into accounting in Moldova - by far the most batshit insane and corrupt part of doing business here bar none.

Let me preface this article by saying that it is just a first effort to scratch the surface of this madness. By no means do I have even a rudimentary grasp on the workings of the accounting and fiscal systems in Moldova and attempts I've made to understand them have come up very short. As a team we've decided that someone needs to start taking night classes on accounting here just to get some idea of what's going on (and we have a full time accountant hired now). So with that said here's a bit about what I do know right now. Pardon me if I made bad assumptions as to intentions or root causes behind these things. After dealing with this for a day it is easy to assume that the system was entirely crafted by unhinged lunatics on a bender and to forget that there are real people trying to address real problems in the government here. That said, as you will see, they are failing spectacularly. 



like this but with more stamps


Without further ado let's start with... 

Facturas for Everything

What is a"factura" ask? Great question. If you melded a standard store receipt with the gravitas of a birth certificate you have a factura. Basically it's a REALLY REALLY important receipt that you need to get for literally everything you buy as a company. They look like this...



To properly explain this system let me walk you through a trip I made to the hardware store for materials for our cafe's remodel. The hardware store in town is called "Supraten" and is basically a Moldovan version of Home Depot (a comparison that carries with it high praise from me as a former Home Depot employee and lifelong fan). After picking out the things I need I go to the checkout lane and buy them with the company debit card receiving in return a receipt. I must then present this receipt to the door checker man who stamps it after which I proceed to my car to dump the stuff in the trunk. This is where the fun begins. I then grab my Smokehouse SRL company stamp from the car and return to the store. In a side room marked "Accounting" I enter to find myself face to face with no fewer than 10 accountants and a handful of hapless schmoes about to go through the same process as me. I then wait to see an accountant and present them with my receipt. The accountant then pulls up my company's information on the computer (or asks for a financial information form from me if it's my first time) and begins making facturas. They pull out three sheets of impeccable security paper and individually barcode scan them and load them into the printer. The factura is then printed on them and she signs and stamps sheets 1-3. I take sheet #1 for my company and sheet #3 for my accountant to file with the government's fiscal office so they have a record of this transaction. Sheet #2 stays with the store so I need to sign and stamp it for the company and return it to them. When I get back to my company I give sheets #1 and #3 to our accountant who needs to enter them into the state mandated accounting system called 1C line by line. She then files sheet #3 with the appropriate financial office. Sheet #1 has my actual store receipt (the register printout) stapled to it. If this is lost the entire process is deemed invalid and you will be fined. Let me also say that this run through is far and away an "ideal" version of this situation. Supraten has 10+ accountants on staff from 9-5 weekdays. If you buy on a weekend or outside of those hours you need to come back another time for the factura. Worse still, if you are buying from a smaller company they often only have an accountant that comes in one day a week so you need to run back on that day and get your factura. Worse still not any employee at my company can do this - only an Administrator or someone with other legal empowerment can. That means the person in charge of the company has to spend a hell of a lot of time running around to collect all this stuff. Oh and by the way here's a picture of that factura from before up close...


you will note that the amount is stated as 39 MDL which, at time of writing, is $2


If you think all of that is confusing wait until you find out that there's...


Lots and Lots of Stuff You Aren't Allowed to Buy


Have you ever worked at an office and only made it through the afternoon because of that sweet injection of caffeine received from a nice cup of coffee in the employee break room? Yeah, in Moldova that's illegal. At least as a business expense - companies can't buy refreshments for people without some kind of higher justification. Why not? Who knows - you just can't. We wanted to serve BBQ to friends who were volunteering to paint our location as a nice "thank you" but our accountant said that this is impossible. We thought - there must be some mistake and dug a bit deeper only to find that there IS a way but it needs to be dubbed an official taste testing which needs to be justified by sign-in sheets and various paperwork. This is all because that program I mentioned before - 1C, the state mandated software that creates financial reporting - needs everything to be placed in a "bucket" or category to be justified and the available ones differ by the industry you're approved to work in (I do not have confirmation for differing by industry - please chime-in in the comments if you can shed some light). Coffee for employees has no such bucket and so is categorically prohibited. 


it's amazing what simple acts can make you a criminal in Moldova (source)


As you can start to imagine this all leads to...

The Result is Widespread Corruption by Necessity

Most people reading this from in Moldova are probably thinking "wait a minute - my office has coffee in it! what gives?!" The answer as I understand it falls into one of two categories. The first is simple working around the rules. In the office I worked in as a Peace Corps Volunteer the staff basically all chipped in to buy some necessities. Occasionally I would bring in a box of tea as my contribution. Combined with the fact that parties in Moldova are catered by the person being celebrated (aka on your birthday you bring food for everyone) this worked out to address all of the problems of our small office. A friend of mine from the states with an IT startup here solves the problem by buying coffee and tea out of his own pocket. This is pretty much the normal approach for evading facturas and all the silliness that goes with the accounting system here - use cash. What about big companies though? How does this work if you have hundreds or even thousands of employees?

Obviously I can't speak for these companies with certainty but I know that often the answer is "creative accounting."



sadly there are fewer musical interludes than similar
past efforts at bringing creativity to accounting...


Many companies are structured, legally or illegally, to never make profits which yields a lump sum of side cash which can be used without all of the maddening restrictions mentioned above. I can't speak to the methods used for this but I know that at least one of the larger chain restaurants here has been around for many years and never turned any profit. I also know that a large beverage distributor here is able to provide cash kickbacks to places that exclusively sell their products. These examples at least involve some level of honest business with dishonest components. Not so for the coffee suppliers we talked to - 2 out of 3 refused to even speak to us when they found out we wanted to buy their product as a company instead of with under the table cash. Their response to all those facturas is basically...




None of that even scratches the surface though. Landlords want money in cash, consultants refuse to work for company cash (more on that in an upcoming post about how messed up HR is here), and if the business is small enough it literally will not sell to another business because of the trouble. All in all the best way to finance a business here is with a suitcase full of cash. In theory this would get you into lots of trouble because buying a microwave out of your pocket and putting it in you company's break room is illegal but that's all solvable thanks to...


Indescribable Ambiguity 

The appropriate answer to any question about accounting here is "no one knows" fullstop. We have asked the same question (about transferring money from the states) to 2 accountants, a lawyer, our bank and finally an employee of the national bank only to get as many answers as people. Literally no one has any idea what is going on. I can't buy coffee for the break room? This realization leads to asking your accountant endless stupid questions because, since there is no apparent framework for the answers you receive, normal people can't possibly know what to do. It's utterly paralyzing. The fines associated with messing up are catastrophic and unsurvivable and literally no one has any idea how to avoid them. The answer of course harkens back to a saying I've mentioned before that "nothing is allowed but everything is possible." You can figure it out somehow if you look hard enough and waste enough time. When we're talking about buying coffee though it's much easier to say "screw it" and buy it out of pocket. When we're talking about being fined because you bought an out of pocket microwave it's easier to pass them a bill and watch it go away. Such is Moldova. 

We have had so much trouble with this that Matt and I started bombarding a friend stateside who agreed to help guide us through our LLC's accounting with stupid questions about what we are and aren't allowed to do. Her response was always a well thought out description of our tax liabilities in different circumstances. This led us to the realization that we were being morons. The US government literally doesn't care at all what we do with OUR money as long as we pay taxes and don't do anything criminal. Fullstop. 




This leads to the realization that in Moldova...


The Root of the Problem is Focus

Remember what I said at the front about my ability to really come up with a root analysis because I don't have enough info? Well, remember later on when talked about ambiguity? Basically we may never have full answers as to what is going on with this messed up system. That said, with the info available to me here it goes.

The Moldovan Government has legislated as if it's prime directive is preventing people from stealing from themselves.

What does this mean? Well basically all of the above complications are meant to document, end to end, the cashflow process for any and all company activities. To me it seems like the government is really concerned that I will buy eggs and bread with the company and make myself breakfast. This leads to the system of super official receipts, 1C data entry, filing expenditure reports constantly to the fiscal office, etc. In essence all companies in Moldova are being audited with great scrutiny every single day in the hopes of finding that they are using company money for personal expenses. Predictably, at least to anyone not writing the laws here, this has forced an economic reaction that forces business owners to take the exact actions the laws are designed to prevent at a level that makes it so widespread that any attempts to clamp down on the criminality would require jailing the entire country. Anything that widespread is a cheap bribe so forcing compliance is a nonstarter. Anyone can see that this regulation is not only failing but was focused in the wrong direction to begin with. The government setting out to regulate companies in order to prevent owners from stealing from themselves or their shareholders essentially injects the government into a conversation to which it was not invited. If I'm an investor and suspect wrongdoing I will take action. If I am an owner and an employee steals from me I will take action. What exactly does the government have to do with this? Why do they care?

The answers should be "nothing at all" and "they shouldn't." In a view that is slightly simplistic but nonetheless informative the US government works in the opposite way to this. They are only involved in business regulation when a) they are brought in by a 3rd party (business dispute going to the courts) or b) they have a vital interest there. In the US most financial regulations that effect small business day to day involve encouraging a payment of taxes and discouraging tax evasion. At the end of the day the US government wants to make it's money and knows it needs to get out of your way so you can make yours. Because of their failure to understand this the Moldovan Government is creating a system that not only encourages but necessitates criminality while retarding their own tax collection potential and the economy as a whole. 


Think I'm crazy or off base? Many Moldovan friends do. Add your thoughts to theirs in the comments below :)





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Posted by on in Stories From The Field
Choosing a Bank

Ok team, this post shall be short and sweet. The title pretty much lets you know what it's about and the lead in pic gives away the end. So, Mobias Bank eh? why?

The answer turns out to be more that there wasn't anything significant to chase us away from it. In order to get there let me list off the main banking options in Moldova as well as their affiliations. 


Bank  International Affiliation Notes
Moldova Agroindbank   N/A This is the bank used by Peace Corps which speaks rather highly to it. 
BCR Bank   Erste Group (Germany)  
Mobias Bank  Groupe Societe Generale (France)   
Victoria Bank N/A Owned by and closely affiliated with Vladimir Plahotniuc, sometimes called "Moldova's one and only oligarch." Multiple people have referred to Victoria Bank as the safest bank in the country because of its association with Mr. Plahotniuc. 
Banka de Economia N/A Accused of laundering Russian Magnitsky Case money (see this article) amongst other possible scandals
Procredit Bank  Procredit Group (headquarters in Germany) Relatively small footprint in Moldova


I'd like to say that we did exhaustive research here but we pretty much just gathered the above information and decided that we wanted our money in an internationally backed bank which leaving Mobias and BCR. Choosing between them pretty much came down to convenience of location. 

Have any thoughts as to which bank we should have picked? do you have better metrics? comment below!

Coming soon - an equally breif post about picking an American bank for International Business. 

Tagged in: Banking Corruption SRL
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