It seemed that the Wholesaler’s seafood stock was being sold in markets at prices much lower than what other customers could buy the stock.
Naturally, the customers asked the question of the Wholesaler, whose subsequent investigations identified instances of stock being supplied to one particular customer (the Defendant), without a resultant invoice being issued.
Bradley Hellen, a Partner in Pilot’s Forensic Accounting Division joined with the Wholesaler and the Results Legal team to reveal the type and extent of the fraudulent activity with a view to providing sufficient evidence to the police and for civil proceedings which were being contemplated by the Wholesaler.
“Our process commenced by designing a series of tests to be conducted by the Wholesaler and their local accountants,”” said Bradley. “This time consuming exercise carried out under our guidance was designed to provide the necessary forensic accounting evidence and to save costs.”
A massive number of transactions were examined starting with the bins of produce unloaded from fishing boats. The bins were then traced through the system to transportation documentation and then to invoices in order to isolate the stock which managed to avoid the invoicing process.
Once the suspect employee and the Defendant had been identified, additional testing was undertaken on the various functions performed by the employee and the supply of produce to the Defendant. It was noted that the Defendant:
- had not been invoiced;
- had benefitted by receiving discounts on prices; and/or
- had benefitted from the issue of unauthorised credit notes.
All goods transported to the Defendant were checked against the invoices raised to ascertain the extent of goods supplied, but not paid for.
Pilot assisted in the identification and calculation of the likely extent of loss suffered by the Wholesaler. However, there was a dearth of direct evidence available to prove the Wholesaler’s case.
The Wholesaler, through Results Legal, took action to recover monies and damages. Legal proceedings were taken against the Defendant for the involvement in the scheme and against the employee.
“While it was apparent that the Defendant knew it was receiving an advantage, the Defendant did not bring it to the attention of the Wholesaler,” said Bradley. “Instead, they retrospectively claimed that the fish received were dumped or were unsuitable for sale or that the lower prices reflected the quality of the stock.”
The quantity of fish lost was approximately 88 tonnes.
To make matters more difficult, the Defendant had in the meantime sold its business and in all likelihood had benefitted from a higher sale price as the trading results had been bolstered by low or nil priced stock. The buyer of the business had also commenced action against the Defendant for alleged misrepresentation associated with the sale.
Following receipt of documentation obtained through a lengthy discovery process, Results Legal re-engaged Pilot to review the internal accounting system of the Defendant who was profiting from the unauthorised actions of the employee and to prepare an expert’s report to the court. This process also saw Pilot analyse the business records of the Defendant’s own suppliers and customers obtained through discovery in order to identify anomalies in the Defendant’s records and to assess broader market pricing and trends at relevant times.
The Defendant had also employed methods of falsifying stock details in their records to hinder any tracing exercise. Jennifer Veitch, a Manager in the Forensic Accounting Division worked with the team and found that by matching the stock identification numbers from source documents through the MYOB file of the Defendant they could isolate sufficient instances of the Wholesaler’s stock that had been on sold to partially quantify the extent of the theft. This effectively refuted the Defendant’s claims that the stock was unsaleable.
A successful outcome was ultimately achieved by the Wholesaler with the matter settling out of court.
“The evidence presented in the firm’s forensic report was instrumental to the matter resolving,” said Michael McDonnell, Principal at Results Legal. “Unfortunately, the employee had been in a position to control too many functions including invoicing, transporting, credit and pricing.”
With Pilot’s assistance, the Wholesaler’s internal systems have since been improved.
“Throughout our investigation the Wholesaler’s persistence in seeking justice and suitable recompense from the Defendant has to be admired. The most perplexing thing about the case was that it appeared the employee had no motivation for being involved in the scheme. No direct benefit was traced to the employee personally,” concluded Bradley.
Bradley Hellen can be contacted on (07) 3023 1300 or firstname.lastname@example.org.