A Contract Bid that Just Didn’t Feel Right

GUEST BLOGGER

Peter Parillo, CFE, CPA, Director of Internal Audit
Folsom, N.J.

Within the past 10 years, the word “fraud” has been used many times to describe the unfortunate actions of individuals and companies. Afterwards, a debate usually begins, and people ask questions such as, “How did this happen?” and “How didn’t anyone see this happening?” in disbelief and anger.

Most people are shocked to learn that more than 7 percent of fraud discovered is done so by accident. In my experience, everything seems obvious only after a fraud is discovered. Increasing one’s knowledge regarding the possibility that fraud may occur and identifying situations where fraud can happen is imperative to the success of any fraud examiner. Knowing this, I motivate all members of my team to become Certified Fraud Examiners (CFEs).

Maria, a member of the team, was reluctant to become a CFE, but was quickly intrigued by some of the topics presented at the ACFE Global Fraud Conference I attended in Las Vegas. Within a few days, Maria began studying for the CFE Exam, and within a few months the ACFE notified her that she had passed the Exam and should be proud to hold the title of CFE.

With this newly obtained knowledge, Maria began looking at audit projects a little differently. Her first project after earning her CFE was a construction project at a nearby facility. After identifying contract specifics, she noticed a vendor named All Right Construction. Maria started her work by asking how the facility chose All Right as a vendor. The response she received was not what she expected. No one she asked knew how the vendor was selected or who was responsible for monitoring the progress of the construction. Maria identified the person who signed the contract on behalf of the vendor, Tony Rizzo, and called him directly. After exchanging pleasantries, Maria asked Tony who told him to perform the work. Tony replied, “John from Facilities.”

The following day Maria met with John who introduced himself and stated, “Tony informed me that you have some questions regarding the construction work?” Maria, shocked that Tony called John, told him that she did and asked him how he typically selects vendors. Looking annoyed, John responded, “The company has a process that requires all proposals be received, and after all bids are received a determination is made regarding which vendor gets the job.” Maria understood the response she received, but felt that John was holding back information. Maria then asked John who was responsible for gathering the bids. John replied, “Well, I do.”

Maria immediately notified me of the issue and continued to investigate. She identified that of the last 12 projects initiated by the facility, All Right was awarded 10. In addition, for each of the 10 projects awarded, All Right was paid for additional work to be performed outside of the initial proposal.

John was asked to explain why All Right was awarded the majority of the contracts, but could not explain. Management was made aware of the issue and John was terminated. John’s replacement was made aware of the issue and within two weeks of starting, was contacted by Tony from All Right, asking if he was interested in going on a big game fishing trip. The new person politely declined.

Afterwards, Maria credited studying for the CFE Exam as why she did not feel comfortable with the initial response. Maria informed me, “It just didn’t feel right, knowing now about fraud scenarios that can happen and the potential for it happening.” Maria added, “It makes me wonder all the things I potentially missed in the past.”

CFE Works With Technology, Not Around It

MEMBER PROFILE

Jeffrey Meyer, CFE
Vice President, Internal Audit, CBS Corporation
New York, N.Y.

Mining data doesn’t just mean going through boxes of paperwork anymore. Much of an investigation’s evidence is collected online via data that could be hidden away on a hard drive or in plain sight on Excel spreadsheets. Jeffrey Meyer, CFE and VP of Internal Audit at CBS, knows the value of making technology work for him. “One of the challenges I see is embracing technology so that we are working through and with it, rather than around it,” Meyer said. “I spend a lot of time with data mining software so that I’m working with the full population, looking for anomalies that might lead me to answers, as well as more questions to be answered.”

What made you decide to become a Certified Fraud Examiner (CFE)?

In 2009, I attended the ACFE Global Fraud Conference in Las Vegas at the last minute after the only CFE was transferred out of our department. While I was initially skeptical of a fraud conference in Las Vegas, I was impressed by the seminars I attended and the people with whom I networked, so I decided to get my CFE credential and fill the gap in our department.

What ACFE training has benefited you most in your role?

While the benefits have been many, I have specifically benefited from interviewing skills training, which has broader implications beyond just fraud investigations. When I’m wearing my “auditor hat,” I spend a lot of time talking to others and gathering information. If I’m better at interviewing, I can spend less time and get better results.

What were some of the more challenging tasks you’ve personally faced as a CFE?

I’ve had several investigations where local finance and management has tried to do some investigating, including interviewing the suspected fraudster. These cases are challenging in that the “first bite of the apple” has already been taken and therefore removed any element of surprise we might have had. We’re working with our divisions to get us involved at the first signs of suspicion, and that’s reaping benefits for us.

What are some of the benefits/advantages to a company or government agency employing CFEs on its staff?

CFEs bring a different skill set and mindset to an internal investigation that can be critical to a successful outcome. You wouldn’t go to a tax accountant for your annual audit or to a dermatologist if you needed anesthesia for a surgery. These fields, while tangentially related, are not the experts in your true need, so why wouldn’t a company or agency choose the expert in the investigation field?

Please describe your most memorable case and its resolution (to-date if it’s a fresh case). Feel free to use pseudonyms for suspects if the case is ongoing and no judgment has yet been made.

My most memorable case wasn’t glamorous or high profile, but to me it was memorable because the business process worked as it should in identifying a potential fraud. While we prepared for a normal audit of one of our local markets, we got a call from the market’s credit manager, whom I’ll name “Bonnie.” As part of her normal controls, Bonnie was reviewing the accounts receivable aging and making telephone calls to follow up on delinquent accounts. With one small, local business account, the owner told Bonnie that he had paid the invoice, and he even had his cancelled check. Bonnie apologized for the mistake and asked if the owner wouldn’t mind faxing a copy of both sides of the cancelled check so she could correct the error. When she looked at the check, she called for our assistance. The sales person on this account, Henry, had added his name to the payee line of the check, had endorsed it and deposited in his bank account.

Working with our Security Department, I began investigating Henry’s accounts to see if any evidence existed for similar activity, but none did. Henry had started with this market less than two years ago, his first position out of college, so his activity was finite and readily available. When we confronted Henry with our evidence, he broke down and admitted he had taken the check. Through tears as he wrote out his confession, he realized that he might have jeopardized the rest of his career for about $800 of short-term cash, which he had already begun to repay before we questioned him.

Read the full profile in the Career Center on ACFE.com.

Trust Is Not a Control for Audit Manager

MEMBER PROFILE

Mohammad Shehab, CFE  
Audit Manager in the Internal Audit Office, American University of Beirut 
Beirut, Lebanon

The financial auditing responsibilities at a university are not just limited to doing what is in the best interests of the students and faculty. According to Mohammad Shehab, CFE, Audit Manager at the American University of Beirut (AUB), the responsibility extends to visiting scholars and accreditors, as well. In an environment that requires continuous reviews and standards, Shehab uses his CFE training and education to ensure AUB remains on the forefront of educational institutions.

Please describe your function (a day in the life).  

I assist the university auditor in planning and managing the activities of the Internal Audit Office, as well as evaluate internal controls relating to the safeguarding of university assets. I conduct and lead fraud investigations, and provide guidance on risk management, fraud risk assessments and the implementation of internal controls.

How has earning the CFE credential benefited you in your career?  

I'm proud to say that as a CFE, I am recognized as a proficient practitioner. The university is committed to ethical conduct and governance, and on a monthly basis we issue an Institutional Integrity and Continuous Improvement report. The report, which is made available to the public, recognizes the importance of having a CFE on board to continuously monitor fraud risks.

What specific challenges do you face working in higher education, as opposed to the private sector?  

As an academic community, the university sets rigorous standards for scholarship and self-assessment that are typical of any institution of higher learning. Programs and departments are subject to periodic external review by visiting scholars to ensure their vigorous growth and renewal, and the university itself applies for accreditation to outside international bodies for confirmation of its relevance and academic rigor.

What advice would you give to someone hoping to follow a similar career path?  

Trust is not a control, stand fast and question everything until you are satisfied with the answers.

What do you consider your greatest career achievement? 

The ability to influence change. Eventually when you see that your work has made a difference, you will then know that you’ve achieved something.

Read Mohammad's full profile and others in the ACFE Career Center.