Internal Fraud Investigation at Lakes Inc - Assignment Example

 Internal Fraud Investigation at Lakes Inc. Abstract Internal fraud is becoming a big problem for organizations with reported incidences increasing yearly according to reports. The Lakes Inc. case was approached through interviewing, document scrutiny and making observations. In getting to the root of the problem, documentary evidence was reviewed and secured. After this interviews were done starting with neutral third party staff at Lakes Inc then corroborating witnesses were interviewed. Next were co conspirators then the main suspect. Professionalism was maintained as was respect for the suspects rights. All interviews and proceedings were recorded. A confession was obtained from the key suspect after a leniency deal with the co conspirator. The investigation recommended an out of court settlement. Introduction Internal fraud is increasingly becoming a major concern for organizations either with staff abusing their positions, making false claims or out rightly obtaining company assets by unauthorized means. While staff should be the first line of defense against fraud attacks, some staff members take advantage of this and become the fraudsters. The UK leading anti fraud agency, CIFAS reported a 70 percent increase in internal fraud by employees in the half year of 2009 (Jones, 2011). The rise in staff fraud necessitates investigations in the most professional and effective manner to root out the offenders, recover stolen property and mitigate such future occurrences. This paper will give a narrative of Lake Inc. case where the Associate purchasing director was reported to be abusing his position to obtain goods fraudulently. The essay will report on how the investigation was done, the findings and conclusions made. On receiving the tip, the Lakes Inc. management contacted the writer to get to the bottom of the issue by conducting a thorough and professional investigation. The basic steps for investigating internal fraud were conducted to solve the case. The fact that the investigations started almost two months after the staff tip off could potentially have jeopardized the case. This is because frauds should be reported, verified and investigated as soon as possible. This way tracking evidence is faster and the evidence is still fresh. Sufficient grounds to believe fraud had taken place were established by myself before getting on with the investigation. I used interviewing, document scrutiny and making personal observations to get to the root of the case, and secured control and ownership of the relevant purchase and payment documents. This was essential in ensuring they are not tampered with and that they could be availed and used as evidence. The documents helped form the basis for conducting the investigation at Lakes Inc. I reviewed the obvious information first; that false invoices had been used to obtain refunds by the purchases department amounting to $ 8 795.60, before getting into the details. Getting detailed information involved interviewing neutral third party witnesses to the case after scrutinizing the invoicing documents and authenticating them. The neutral third party witnesses interviewed were dispatch and collection personnel, the stores and inventory clerks, and the IT support department (Coenen, 2009). These were interviewed to verify no computer servers were bought as stated in the invoice and claim documents were actually delivered, entered into the inventory records, and/ or installed. The interview took place on the 6th August. From here, witnesses who could corroborate the evidence adduced so far were interviewed on the same day (Coenen, 2009). An evaluation of the requisition system for new equipment or office equipment was done to establish the procedures and who were involved in the process. It was established that all staff members were required to fill in a requisition form to be approved by the purchase department head and the accountant before any goods were ordered from suppliers. In this case, the associate director of the purchasing department made a requisition approved only by himself and the administrative assistant but not the department accountant as required by the rules. This already showed a non-compliance with the laid out procedures. The accountant confirmed not having signed the particular requisition forms in question and that he did not handle the purported invoices. This evidence corroborated what was believed to have happened. Possible co conspirators were then interviewed on the next day, 7th August to ascertain whether there was a possibility of a conspiracy (Coenen, 2009). The target persons were the dispatch and collection personnel, the accountant at the department, stores and inventory personnel and the purchasing manager; IT. The theory behind interviewing them was because the accountant, purchasing manager IT, stores and inventory personnel and the collection staff would have acted in cooperation or in concert with the principal suspect; the associate director of purchases. I also asked the administrative assistant if she could be willing to have a discussion with me concerning the case. At first, she was reluctant and unwilling to cooperate, instead saying I should talk to her lawyer. However, I reminded her that the case could proceed to criminal trial in a court of law and I was willing to ensure she would get less responsibility if she cooperated. She said she would think about it and get back to me within three days. The interviews were recorded in writing for further referencing while documentary evidence was secured with certified copies also made and kept by myself (Coenen, 2009). I contacted the listed supplier Mr. Jones and asked for an appointment to have a discussion. He was a little busy but scheduled a meeting on the 16th of August at his premises. I also made a point of asking the former associate director of purchases at Lakes Inc. for a discussion. He was willing to talk, provided that his lawyer would be present and said he’d be available on the 20th of August. The former administrative assistant gave me a call and said she was not willing to talk to me at that moment. I made further requests for information on the process of entering information about purchased goods and how they are given a unique ID in the computer system. I established that the purported purchases were not entered into system nor given a unique ID. On the 16th I visited Sterns and had a lengthy interview with Mr. Jones. I made a request to have a look at all purchases made by lakes Inc. from Sterns and certified copies of the records to which he agreed. I also asked him indirectly if he had prior knowledge that Mr. Smith and his administrative assistant could have been making false purchases on behalf of Lakes Inc. and in the process committing fraud (Coenen, 2009). Mr. Jones said there was no way of knowing; they gave proper and official invoices whenever anything was purchased and received payments. He said the two in question had made purchases of what he thought should be domestic goods with company documents and that Ms Bad had used Mr. Smith’s purchase cards to make additional purchases for domestic goods. What he acknowledged was out of place were the requests by both of them to have the items collected rather than Sterns to deliver them as was the norm. I took copies of invoices and compared with what was in the files of Lakes Inc. and noticed that Lakes inc. only had copies of invoices bearing the same numbers but having different particulars. It was also instructive that the invoices bore the signatures of Mr. Smith and some had Ms. Bads’ signatures for approval and confirmation of receipt and not those of stores and inventory personnel. On the 20th August, I had a long interview with Mr. Smith. I explained to him again why we were there, my mission and that we could help each other. I read the facts and issues again to him and told him I expected nothing but the truth. His lawyer objected saying “the truth is a matter of conjecture and my client has no obligation in saying what he deems to be wrong!”. He also said his client (Mr. Smith) had the right not to incriminate himself as provided for by law. I concurred and seeing that not much was forthcoming, I ended the meeting and put an offer for leniency should he cooperate. Three weeks later I got a call from Ms. Bad saying that she wanted to talk. We met at my offices and I gave her a hint that I had crucial evidence against her and that if convicted, she would be facing time in prison. However, I could plead for leniency for her if she cooperated. She said she would cooperate. She intimated that she did not know Mr. Smith had been defrauding the company and abusing his position until when they were intimately involved that she learned about it. She had received a ‘voucher’ to purchase for herself a notebook computer, a digital camera, and a GPS system when Mr. Jones let her use his purchase card. Prodding her further, she said Mr. Smith had manipulated her and since they were involved and she feared losing her job, she did not report the matter. My grouse with her was why she willingly signed documents (purchase requisitions) but thanked her for her cooperation and promised a lesser punishment as much as I could legally manage (Pickett & Pickett, 2010). I spoke to Mr. Smith towards the end of October when he agreed to have an interview. This time I was tougher, asked him direct accusing questions like “Why did you do it Smith, what was there to gain?” he tried denying but I interrupted him as I wanted a confession. In the end, I obtained a full confession from Mr. Smith. I established in my investigation that Mr. Smith with his accomplice Ms. Bad had knowingly committed fraud against lakes Inc. by misappropriation of assets and fraudulent disbursement by forging invoices and fake billing, making false requisitions and claiming for fictitious refunds from Lakes Inc. (Coenen, 2008). Conclusion Internal fraud is a major challenge in today’s corporate world. After receiving a tip, the right investigation procedure should be followed by reviewing and securing documentary evidence, interviewing third party witnesses, corroborative witnesses, co conspirators and the main suspect(s) in that order. Confessions should be the strategy in interviewing suspects. Offering leniency in exchange for information should be considered especially when interviewing co conspirators. In the Lakes inc. case, I recommend a tightening and streamlining all purchase requisitions and that it is done during specific intervals. Internal controls and regular audits should also be done at Lakes Inc. anonymous channels and Qui tam concept should be introduced and strengthened at Lakes Inc. to encourage more tip offs. I recommended litigation of Mr. Smith and Ms. Bad and preferably an out of court settlement where they will agree to pay Lakes Inc. for damages arising from misappropriation of assets, be barred from ever working or acting on behalf of Lakes Inc. or its associates and forego their retirement benefits and entitlements. References Coenen, T. (2009) Expert fraud investigation: A step-by-step guide. (pp. 206-208). Hoboken, NJ: John Wiley & Sons Coenen, T. (2008, September 02). Three basic fraud types Retrieved from http://www.allbusiness.com/crime-law-enforcement-corrections/criminal-offenses/6635361-1.html Jones, M. (2011) Blowing the whistle on employee fraud Retrieved from http://www.emb.com/uk/news/blowing_the_whistle_on_employee_fraud.php Pickett, J., & Pickett, K. The internal auditing handbook (3rd edition ed., pp. 452-459) West Sussex, ENGLAND: John Wiley & Sons. Read More