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Investigative techniques
to help mitigate risk
A whistleblower at a large manufacturer alleged that an
employee in the procurement department was colluding with
a vendor to bill the company for security services that were
allegedly never rendered. The investigation revealed several
large round dollar invoices billed for security at events that
the company had no record of ever occurring. The vendor
admitted in an interview that some of the invoices were in
fact fictitious while other invoices were for legitimate services
rendered to the company. This scheme lasted several years and
cost the company hundreds of thousands of dollars before the
whistleblower, who worked for the employee in procurement,
tipped off internal audit.
An analysis of purchases by the maintenance department
of another large company revealed that the price paid
for various supplies was two and sometimes three times
higher than market value. An investigation revealed a
connection between the vendor and maintenance department
procurement officer.
These two real life examples have a common thread. Both
companies had controls in place such as segregation of duties
and supervisor approval that were either overridden by either
collusion or abuse of approval authorities. Learning from the
investigative process that uncovered the techniques used to
perpetrate the frauds, and employing similar investigative
techniques to assess procurement activity on a periodic,
proactive basis may be helpful in identifying anomalies like
relationships between employees and vendors and anomalies
in the pattern of purchasing.
The Association of Certified Fraud Examiners describes
occupational fraud as the use of ones occupation for personal
enrichment through the deliberate misuse or misapplication
of the employing organizations resources or assets. Fraud
is a potential risk in most businesses. Organizations instill a
certain amount of trust in their employees in order to operate,
and those within the procurement function are entrusted with
access to vendor selection, vendor files, accounts payable,
invoice approval, and purchase orders, which can provide
an opportunity to commit fraudulent activity such as bid
rigging, false billing schemes, vendor kickbacks, and conflicts
of interest. Whether the employee is a purchasing agent,
controller, accounts payable manager, or any other employee
essential to the operations of a business, a dishonest employee
can present a potential fraud risk for the organization.
Ron Schwartz
Partner
Deloitte Financial Advisory Services LLP
+1 404 220 1540
rschwartz@deloitte.com
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