Fraud Can Happen to Anyone, Even the Government

As published in the http://www.washingtontimes.com/news/2017/may/27/kuwaiti-company-agrees-to-pay-95-million-in-fraud-/

Everyone can be affected by fraud, even the US Government. In a recent story, we read how the U.S. government was defrauded by a Kuwaiti logistics company that was contracted to feed American troops in Iraq, Kuwait and Jordan. According to the indictment, the logistics company provided false invoices and statements, bought high-priced food items and then knowingly inflated the prices, received rebates and discounts that were not passed on to the government, asked vendors to manipulate product packaging so that inflated fees could be charged to the government.

These charges came from allegations originally raised in a civil whistleblower suit by a former vendor of the logistics company. The vendor filed the lawsuit under the whistleblower provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The Act also allows the government to intervene and take over the action, as it did in this case. In the civil complaint filed by the United States, it alleges that the company knowingly overcharged the Department of Defense for locally available fresh fruits and vegetables and falsely charged the full amount of invoices despite the agreement that they would pay 10 percent less than the billed amount.

According to the Association of Certified Fraud Examiners (ACFE) 2016 Report to the Nations on Occupational Fraud and Abuse, of the cases involving a government victim, those that occurred at the federal level reported the highest median loss of $194,000, compared to state or provincial at $100,000 and local entities at $80,000.

A whistleblower brought the fraud to light in this case – consider adding a fraud hotline to your organization to create a simple way for employees or even vendors to raise the alarm if they notice something isn’t right. Contact Mike Rosten, CPA, CFE for more information on fraud red flags or to receive a fraud checklist for your organization.

Advertisements

Employee Fraud and Unsupervised Financial Access

Every business should have some controls in place when it comes to their money, but it takes more than just having words on paper. Policies must be enforced to be effective.

Recently, the accounting and compliance manager for the Oklahoma Beef Council was able to circumvent the internal controls and commit employee fraud. Why? The opportunity for fraud came from the lack of follow up on a written policy related to signing company checks.

For almost six years the accounting manager, not an authorized signer on the bank account, had a signature stamp. She was given authority to use it only on limited occasions. Sometime in 2010 she was instructed to stop using the signature stamp, but since management never physically took away the stamp, she was able to keep using it without their knowledge.

Lack of management oversight allowed her to forge 790 unauthorized checks from the business accounts and put those funds directly into her personal account. Through her position, she was also able to make false accounting entries to cover up the forged checks. She eventually pled guilty to embezzling $2.6 million and signing a false tax return.

Does your business need help detecting red flags for employee fraud? If you find yourself in need of a forensic accounting expert witness or investigator, contact Mike Rosten, CPA, CFE.