Victims of fraud are often able to identify red flags that, in hindsight, were ignored or overlooked. While those red flags are not necessarily certain indicators of fraud, BDO’s Forensic Services team finds they often warrant further investigation, no matter how small or insignificant they may seem.
Uncovering a $3 million fraud
Our forensic services team were recently engaged by a client who was unsure of the reason for their cashflow issues. Some of the red flags included increasing revenues, good productivity, and busy staff. However, this was not converting to the bottom line and the client was constantly relying on their overdraft facility.
With the aim of uncovering the source of the cashflow issues, our forensic data analytics specialists reviewed all transactions and quickly discovered that $3 million of funds had been paid to four ‘unknown’ bank accounts over a period of three years. While a suspect had been identified, the team still needed to gather evidence linking the suspect to the ‘unknown’ bank accounts.
Enter our forensic technology team, who covertly imaged the suspect’s work laptop and email account to assist with the investigation. Approximately 500,000 files and emails were recovered and reviewed.
The team soon discovered ‘fake’ invoices created by the suspect to support the $3 million of payments to the ‘unknown’ bank accounts.
Unfortunately this was enabled by a weakness within the organisation’s internal controls, allowing new ‘fake’ vendors to be created and approved easily.
A review of previously deleted emails also uncovered evidence of the suspect setting up and operating the ‘unknown’ bank accounts.
We prepared an expert forensic report and brief of evidence (Expert Report). The Expert Report was initially used to help obtain freezing orders (which is a court enforced order restraining a party from selling, moving or hiding assets), as the $3 million had been traced to the purchase of two residential properties.
The Queensland Police and Director of Public Prosecutions subsequently relied on the Expert Report for criminal purposes.
The suspect was successfully prosecuted on fraud charges and received a seven-year jail sentence. The Expert Report was also used by the client and their legal team to recover stolen funds, via the sale of the residential properties.
This case study highlights two main points:
- Red flags, no matter how small they seem, should be treated as such and reviewed. You never know what may be discovered as a result.
- The importance of internal controls should not be overlooked. Weaknesses and loopholes leave room for fraud.
A new Australian Standard AS8001:2008 - Fraud and Corruption Control was released on 11 June, 2021. This Standard is considered the benchmark when it comes to how organisations can mitigate fraud and corruption risks.
To assist your organisation in understanding its current risks and controls, BDO’s Forensic Services team has compiled a Fraud and Corruption Control checklist. Download our checklist to learn where your organisation may be vulnerable.
Should you wish to discuss your organisation’s current risks and controls, please contact your local forensic services professional.