Detection of serious non-compliance
A mining operation in a developing country was alerted to an over supply of reagents (a substance used in a chemical reaction) by one of their employees via the company’s whistleblowing service. Forensic Executive Director, Rob Cockerell, recounts how a KordaMentha investigation uncovered significant fraud and saved the company millions of dollars in costs.
"The company engaged our Forensic Investigation specialists. We met with the whistleblower and obtained details of the allegation, including specific invoices that the whistleblower had collected.
An investigation plan was designed, anticipating detailed offsite review of the relevant supply contract. Through analysing details of the cost per unit, the purchasing program, transport and onsite usage details, we identified a significant variance between the unit price being charged and the stated contract price. We found that this variance had been hidden in the accounting system by the application of certain additional costs to capital expenditure and transport expense accounts, rather than to purchases.
Once the breach had been identified, our forensic technology experts made forensic images of the computers used by the employees believed to be involved in the breaches. Through this process, we discovered the details of the contract negotiations which had been hidden from the General Manager. We also found correspondence from senior staff instructing junior staff to adjust the accounting records to cover up the overcharging.
Equipped with this information, we went onsite under the guise of an internal audit review. Meeting with employees and examining relevant documentation held on site, we identified the amount of stock on hand, and gathered and analysed evidence concerning the quality of the reagents supplied.
In our investigations we uncovered that:
- the unit price of the reagent had been increased above the contract price without appropriate approval
- accounting records had been manipulated to cover the overcharging
- bank reconciliations had been adjusted, again to cover the overcharging
- significant over supply of, and payment for, the reagents had caused a significant impact on the immediate cash flow of our client
- there was a close personal relationship between the employees under suspicion and the suppliers, thereby revealing the motivation behind the above conduct
- the potential loss to our client was estimated at around US $750,000. Had this non-compliance not been identified earlier, the potential loss would have been in the millions of dollars.
The two employees involved in the breach were unable to provide any reasonable explanation for their behaviour and their employment was terminated, allowing the company to focus its efforts on the efficient running of its operations.’