A FRAUD OF INDUSTRIAL PROPORTIONS

The San Antonio Express-News reports that a federal grand jury indicted five former managers of a San Antonio industrial services company over allegations of an inflated invoice scheme, which resulted in a loss of US $11 million over a seven-year period. A corporate fraud task force discovered the fraud after uncovering a pattern of filing false invoices for payments on consumables, such as hardhats, small tools, and gloves. The task force turned over the investigation results to federal prosecutors.

Lessons Learned

This alleged fraud scheme highlights the importance of having a three-way matching control — order, receipt, and payment amounts — to ensure that invoices have not been inflated. Performing an internal investigation led the corporate fraud task force to suspect fraud, which prompted them to alert and cooperate with the Internal Revenue Service Criminal Investigation Division, which has the authority to seize assets that can be sold to make restitution for losses.

Above all else, this situation proves that senior management must set the tone at the top, ensure the proper controls are in place, determine where allegations of fraud have substance, and call in the experts when necessary.


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