US Navy officials charged in ‘Fat Leonard’ fraud

A Malaysian national operating from naval bases in Singapore and across Asia has managed to cause one of the biggest criminal fraud cases in US Navy history. US government investigators have detained and charged multiple US Navy officials for offences relating to bribery and corruption.

The Malaysian national is named Leonard Glenn Francis – widely known as “Fat Leonard” – who operated Glenn Defense, a maritime service company which held more than $200 million worth of contracts to resupply and refuel US Navy vessels across Asia.

The scandal became public in September 2013 when federal investigation agents Leonard Glenn Francis, from his base in Asia to San Diego in a sting operation. Leonard Glenn Francis believed that Glenn Defense was on the cusp of being awarded further US Navy contracts; instead he was arrested and charged with bribery and corruption offences. Leonard Glenn Francis has since pleaded guilty to bribing “scores” of US Navy officials with prostitutes, cash, gifts, expensive meals and other indulgences over a decade.

Leonard Glenn Francis has allegedly now admitted to cheating the US Navy out of at least US$35 million by ways of forging invoices, overbilling, running kickback schemes and gouging for standard maritime services. Essentially, Leonard Glenn Francis bribed senior officers within the US Navy so that they would turn a blind eye to the increased charges.

Leonard Glenn Francis operated a sophisticated machine to penetrate various levels of the US Navy establishment to ensure he obtained the information he needed and covered his tracks where necessary. Leonard Glenn Francis allegedly recruited three officers within the US Navy to act as paid moles for the contractor, Glenn Defense Marine Asia, by leaking intelligence about criminal investigations into the company or other information to give the firm an unfair advantage over competitors.

It is alleged that Leonard Glenn Francis and Glenn Defense had:

  • Bribed US Navy officers with access to prostitutes and gifts of cash or electronic items
  • Corruptly arranged the US Navy to grant diplomatic clearance to Glenn Defense so that it could avoid inspections and dodge customs duties into the Philippines
  • Bribed a retired commander to leak Naval Criminal Investigative Service (NCIS) files to Glenn Defense to help the firm thwart fraud inquiries.

Leonard Glenn Francis adeptly identified personnel on ship and shore, civilian and uniform, who were willing to work with him to defraud the US Navy. Leonard Glenn Francis even hired retired IS Navy officers who then helped recruit active-duty officers to assist with supplying information.

With the high level contacts with US Navy decision makers, Leonard Glenn Francis was able to have ships steered to certain ports where Glenn Defense could easily overcharge the Navy for services.

Leonard Glenn Francis benefited from the US Navy ignoring warnings over the years from honest US Navy personnel, some who requested reviews and cancellations of contracts due to the huge charges for services that Leonard’s company billed. When he fell under suspicion, Leonard Glenn Francis had a Navy criminal investigator pass him internal documents about investigations into Glenn Defense.

Leonard Glenn Francis was an adept networker and worked hard to cultivate relationships in the Navy. He chose to host lavish parties for US Navy officers at select restaurants and bars, spending freely to entertain. Leonard Glenn Francis would then start the bribery process by giving small gifts to individual officers such as whisky or the services of a prostitute – those that accepted the gifts were then targeted to obtain information whilst the gifts were increased in frequency and value.

In 2008, Leonard Glenn Francis targeted one US Navy officer based at the Fleet Logistics Centre in Yokosuka, Japan. The officer was involved in the naval supply system, responsible with providing logistics support for ships, awarding and overseeing contracts.

This officer provided internal US Navy information on ship schedules, port visits, and how the service would handle ship servicing contracts and controlling costs. Leonard Glenn Francis exploited this information so that he could charge excessive costs. In exchange, the officer received more than US$100,000 in cash, stays at luxury hotels and the services of prostitutes.

Leonard Glenn Francis built up a web of contacts throughout the US Navy – including those on contract review boards, which could recommend and approve bidders for Navy contracts. Leonard Glenn Francis would then have his contacts steer contracts for servicing ships to Glenn Defense in Thailand and the Philippines.

The federal investigation has established that Leonard Glenn Francis ran a decade-long scheme by which he defrauded the US Navy out of tens of millions of dollars by targeting a handful of key points in Asian operations of the fleet.

So far, federal investigators have charged 14 individuals and prosecutors have said that as many as 200 others are under investigation. According to US Navy officials, nearly 30 admirals are under scrutiny for possible criminal or ethical violations.

 

Fraud audits for companies and organisations

Fraud is an ever increasing problem for companies and organisations of all sizes. According to the Certified Fraud Examiners recent survey in 2008 in the USA alone, around US$994 Billion was lost to fraudulent activity. Fraud is a different form of commercial crime, the very nature of how it is carried out means that the victims are unaware of the fraud unless it is uncovered during an audit, an investigation, a whistleblower or else it becomes so substantial that it begins to serious damage the very wellbeing of the business. As business continues to move faster and payments and transactions move ever more onto computers and the internet, the scope for fraud grows ever larger.

Based upon this, how can you be sure that you and your company are not unwitting victims of fraud right now?  One method to answer these questions and take steps to prevent fraud is to have an external expert conduct a forensic anti-fraud audit on your business or organisation.

Broadly speaking a forensic anti-fraud audit seeks to:

1.    Identify the opportunities for fraud within your business;
2.    Identify the controls and procedures which protect your business from fraud [and those that don’t];
3.    Verify financial transactions that are not adequately protected from fraud as being valid or suspect; and
4.    Fix, introduce and monitor controls to protect your business from ongoing

Transactional fraud

  • Transactional fraud occurs whereby employees or managers responsible for making payments to employees [pay roll], suppliers, creditors or financial organisations make false or erroneous payments to themselves or entities they control. Transactional fraud provides the widest scope for dishonest employees to defraud the company or organisation.

A simple example is the use of double payments. The employee pays a legitimate supplier normally via EFT then makes another payment via cheque for the same amount to themselves or as `cash’. The employee then enters this additional transaction as a further payment to the supplier and keeps the money for themselves. This results in the business appearing to be less profitable unless the fraud can be identified and halted.

Other dishonest employees create false or `ghost’ suppliers while they create false invoices for goods never supplied or services never provided. The dishonest employee then creates and approves illicit transactions to supposedly pay for these fictitious goods or services.

Areas which a fraud audit can take action include:

  • Confirm whether a supplier is genuine, verify address and business records [are the contact details the same as an employee?]
  • Via data mining with company and bank data, match transaction to invoices to identify over payments or unjustified payments;
  • Look for double payments within a short time period;
  • Examine pay roll lists and verify against data mined transaction data to determine ghost employees or over time claimed but not worked

Fuel charge fraud
Employees are commonly given an expense account for fuel purchased in relation to travel to / from work plus travel on the behalf of the company meeting clients, attending meetings etc. Often such expenses are not closely monitored and unjustified or dishonest claims can quickly surface.

A fraud audit focusing on possible fuel charge would seek to review the available records and data in relation to fuel claims and:

  • Review details as to size of petrol tank for claimed car and mileage completed
  • Match quantities [in litres] of fuel purchased to size of fuel tank – does the receipt indicate that more fuel was purchased than could be fitted in the tank? Are they filling up their spouses’ vehicle at the same time?
  • Review the frequency of fuel purchases to claimed mileage – do the purchases fit the mileage and seem reasonable
  • Compare the address of the fuel station against the claimed travel route – if a trip was from KL to Melaka, why does the receipt show an address in Ipoh? Do the dates match for the claimed travel

Fraud audit purposes
A fraud audit review seeks to provide the comfort that fraudulent activity had not occurred whilst identifying improvements and efficiencies for internal controls with an implementation plan and ongoing monitoring.

A fraud audit seeks to supply enable a company with a better understanding within the business of the need for improved fraud risk management processes and effective management of a
potentially damaging incident in terms of reputation.

However fast your business is growing or how large the company has become, remember that “Fraud can happen to anyone, including well run and respected businesses” and may be happening right now eating away at your profits and will only get worse until it is addressed.

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Fraud Investigation page for further details and us send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Money cards and Anti Money Laundering

Gift card vouchers can be the perfect solution for a birthday when you’re not sure what present to buy. Simply pay cash at the store or shopping mall and transfer the same value onto the voucher to be used at the designated outlets or mall. Travellers Cheques have been replaced by `Travel Money Cards’ following the same principle – customers deposit funds onto a separate ATM card which are available in various currencies. Incorporating a PIN, the customer can then withdraw the funds from ATM machines in the foreign country until the card is spent. If the card is stolen along with the PIN, then the most that can be lost is the value still stored on the card.

But such convenience has also attracted fraudsters, organised crime gangs and terrorist groups to solve a problem they all face; how to move funds between individuals around the country and overseas without the threat of being apprehended at Customs for cash smuggling or have the Electronic Funds Transfers traced by the authorities.

Recent arrests in the US have documented that some crime groups are increasingly using the money cards, many of which are bought with “digital currency” via the Internet using fake credit cards or compromised bank accounts. With casinos and banks the most established means for money laundering, and thus coming under heavier scrutiny for Anti Money laundering [AML], medium scale money launderers are increasingly turning to `Travel Money Cards’ to distribute their illicit funds because they provide ease and anonymity.

Gift voucher cards are normally designated as closed-system or closed-loop cards because they can only be used at the retailers or shopping mall that issued them. Open-system money cards (such as those linked with card companies VISA and MasterCard) can be used at most retail stores and many of them are useable as ATM cards where the card holder can withdraw the value on the card in cash from most ATM machines in the world.
Because these cards can also be reloaded with funds via online transactions or else at banks or via a cash-tills transaction, they’re an effective method for fraudsters, criminals and money launderers for distributing funds quickly and covertly.

Criminals can thus load cash onto multiple pre-paid open-system cards and courier the cards to their counterparts outside the country. The counterparts can then withdraw the funds in cash in their own currency with ease from local ATM machines. When the card is spent it can be discarded and the cash is untraceable.

There are many businesses and organisations that legitimately purchase gift card vouchers as rewards for their staff for meeting productivity targets or else as gifts for their customers around the holiday periods. Such large volume purchases help to muddy the water for transactions by fraudsters so they don’t stand out. Thus a fraudster can make a series of transactions for a few thousand dollars each time and is unlikely to raise any red flags.

The added bonus for a fraudster is that he can place several thousand dollars on a retail gift card and not have to deal with a currency transaction report – such as he would at a bank – and it wouldn’t be recorded on a suspicious activity report. In fact, experienced fraudsters will avert attention by breaking a large-dollar amount transaction into a number of smaller amounts over a period of a few weeks (a method of laundering sometimes referred to as `Smurfing’). The expiry date on the cards is usually 12 months, giving them sufficient time to transfer the card value back into cash [if they don’t spend it at the store first].

Fraudsters may sell or auction the gift cards online via websites such as  SwapaGift.com, CardAvenue.com, and even eBay. They sell the cards at a slight discount but it isn’t much different than bringing amounts of cash into a casino, buying chips, gambling for a short while, and then cashing out with one or more cashier’s cheques to hide the scheme.

Businesses have to be cautious that their own legitimate buying of money cards has not been infiltrated by a fraudster who person helping them to launder money. We have investigated a number of frauds for businesses where poor procedures and oversight allowed fraudsters to abuse their gift card buying system and defraud thousands of dollars meant for their customers.

As this method of fraud and money laundering is relatively new, businesses need to be aware of this fraud risk and implement monitoring and detection methods to combat any fraud and money laundering.

Do you need to know more about our services and how Regents can assist you with fraud or Anti Money Laundering issues? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once. Visit our Fraud Investigations webpage for more information.

Air India Found Wanting – Designing a Robust Fraud Prevention Program

Stelios Haji-Ioannou, founder of budget airline EasyJet once uttered the famous phrase “If you think safety is expensive, try an accident”. This was based upon his dire experience in 1991 when a tanker belonging to his father’s shipping company spilled 50,000 tonnes of oil in an environmental catastrophe that claimed five crew members’ lives. As chief executive, Stelios Haji-Ioannou barely escaped incarceration in Italy for manslaughter.

Likewise, any substantial business or organisation is tempting fate by failing to have a Robust Fraud Prevention Program in place. The risks may not be an oil spill but can be equally costly to the bottom line and damaging to the reputation of the business.

As an example for failing to have an adequate Fraud Prevention Program in place, the state owned airline Air India has recently been in the news for all the wrong reasons. Allegations of rampant theft, fraud and maladministration have been widely circulated. These have included tales of repeated thefts of liquor from flights, diversion of spare parts for illicit sales, kick-backs related to the orders of goods plus pilots being paid for duties not performed.

State owned Air India is now facing the reality of job cuts or cease flying certain routes. The failure by executives and management to inculcate an atmosphere of anti-corruption as well as implement an anti-fraud structure has set the scene for wide scale waste and theft.

Any company, institution or organisation –must create and implement a robust fraud prevention programs that is staffed and overseen by capable fraud examiners.

A fraud prevention program will help to protect a company or organisation by:

  1. Instituting a whistle-blower hotline whereby employees and contractors can make confidential tip-offs regarding fraudulent behaviour;
  2. Setting the principled “tone at the top” so that the whole business or organisation embodies the anti-fraud ethos;
  3. Developing a code of conduct and a confirmation process to structure anticipated behaviour for all personnel and contractors
  4. Creating an environment that ensures audit trails for purchase, orders etc. are in place;
  5. Hiring and promoting appropriate employees via a Pre-Employment Screening program;
  6. Instituting suitable anti-fraud and graft training programs;
  7. Identifying and measuring fraud risks;
  8. Implementing and monitoring internal controls;
  9. Having a strong and independent audit committee;
  10. Contracting independent external auditors;

Stopping fraud before it occurs is the ultimate goal of a successful fraud prevention and awareness program.

Hotlines Run Hot
Honest and responsible employees & contractors will utilise hotlines to report irregularities and suspicions anonymously without fear of retaliation. Anti-fraud surveys by the ACFE have reported that hotlines can cut an organization’s fraud losses by approximately up to one half.

An independent third-party vendor can set up whistle-blower hotlines; receive, screen and log confidential calls before passing along relevant information to investigative entities for their action.

Extra effort should be made to communicate the existence, contact channels and benefits of the hotline to all employees and contractors on a regular basis to report any suspect or improper business practices.

Three fraud mitigation actions
Fraud experts have outlined three main actions to mitigate fraud: create a culture of honesty and high ethics, evaluate anti-fraud processes and controls, and develop an appropriate ongoing oversight process.

Setting the Tone at the Top
A company or organisation’s executive and management team sets the moral and ethical direction for all employees and contractors to follow. Employees need to know that the upper echelons believe and submit to a high level of ethical behaviour. Management must clearly communicate a zero tolerance for fraud and the need to follow the pronouncement with education and awareness campaigns to reinforce policies and procedures.

Develop a Code of Conduct
The keystone of an effective fraud prevention program is a culture with a strong value system founded on integrity. This value system can be reflected in a code of conduct. The code of conduct should be created with the involvement and input of employees so that they can be guided whilst making appropriate decisions during their workday.

A code of conduct should include written standards that are designed to deter dishonest or immoral behaviour, promote honest and ethical conduct by all employees plus advise employees what they can and cannot do. The code of conduct should be provided in both a soft and hard copy to all employees, circulated regularly and translated into appropriate languages for overseas locations.

Confirmation Process
People with low integrity or external pressures may be deterred from committing fraud if they know that there is an oversight and confirmation process which increases the likelihood that they will be caught. After issuing the code of conduct to all employees, each should be required to sign a statement indicating that they have read and understood the code’s requirements and will comply with them. This will have the effect on those who have signed the statement can’t later hide behind the claim of ignorance.
Do you need to know more about our services and how Regents can assist you with preventing internal theft and corrupt activities?

Simply go to our Internal Theft or Corruption Investigation pages for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Major corruption payments to Singapore Ikea manager

 

A Singaporean businessman who paid an incredible SGD $2.4 million to Singapore Ikea’s food services manager over six years has pleaded guilty to 12 counts of corruption involving $761,020. Andrew Tee Fook Boon, owner of business AT35 Services, gave monthly bribes to Mr Chris Leng Kah Poh, then Ikano’s food services manager [Ikano is the local franchisee of Inter Ikea Systems B.V. which operates Ikea in Singapore.

The purpose of the payments was to influence Mr Chris Leng to favour him in placing orders for food products with AT35 and later Food Royale Trading.

Andrew Tee had been operating a scrap metal and waste material disposal business in 2002 when he accepted a business proposition to supply food – mostly raw marinated chicken wings – to Ikea. Yes, those chicken wings consumed by the plateful at Ikea Tampines and Alexandria with plenty of chilli sauce.

Between January 2003 and July 2009,  Tee and his alleged accomplice  Lim Kim Seng had on over 80 separate occasions, given Mr Leng sums of money derived from the profits made by AT and/or Food Royale from the business dealings with Ikea. Following the discovery of the fraud, Mr Tee paid $1 million compensation to Ikano. He could have been fined up to $100,000 and/or jailed for up to five years on each charge.

The fraud case is believed to be one of the biggest amounts involved in a private corruption case in recent years. The corrupt relationship existed from 2003 through to 2009 before being discovered.

Some commentators have questioned how the corrupt relationship was allowed to flourish and continue for such a long period and such large sums were paid to the Ikea manager without being detected.

Possible red flags that could have arisen and, had they been noted by Ikea management at the time, may have led to the corrupt relationship being exposed sooner include:

The Big Spender
The recipient of large corrupt cash payments resort to buying luxury items or else taking expensive holidays [though some chose to pay down debt and keep a low profile]

The Gift Taker
The manager who is willing to accept inappropriate or questionable gifts from suppliers is likely to succumb to corrupt approaches

The Rule Breaker
The recipient of corrupt payments will often take it upon himself to make decisions relating to the contract and payments and seek to exert total control. The recipient will merrily bend or break rules to suit himself or else have subordinates turn a blind eye. Some may involve themselves in areas that are not part of their responsibility and interfere in an attempt to control the contract.

The `Odd Couple’
Corrupt payers and recipients often appear to have friendly relations and meet up socially, though they don’t seem to make a normal fit. The lure of cash and profits outweighs the social awkwardness.

The Explainer
The corrupt receiver will frequently take steps to cover up any failings of the payer’s products or services; the receiver will explain away the poor quality, later delivery or excessive prices as necessary because the payer is `specially qualified’.

The Needy One
The corrupt receiver may have financial pressures resulting from gambling, substance abuse, debt problems or else family pressures. Observing these pressures may help pre-empt them and take away the need for corrupt payments.

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Fraud Investigation page for further details and us send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Is Speak Asia Online to be trusted?

Despite being the home of software programmers and large scale IT out-sourcing companies, the Indian public has not been exposed to internet sensations, rumours and intrigue to the same extent as countries such as the USA.

Until now.

The online opinion company Speak Asia Online is a Singapore-based company which is now being investigated by Indian authorities for alleged financial fraud and conducting business in India without a licence. Some claim that Speak Asia Online has all the hallmarks of a classic internet Ponzi scheme whilst its supporters claim that it is a legitimate business venture which is being criticised for its own rapid success.

Speak Asia Online claims that it is a legitimate company which pays its’ subscribers a small sum each time they complete an online questionnaire regarding a product or service. Speak Asia Online claims that it is engaged by various companies to conduct market research with Indian households.

Speak Asia Online claims to have attracted nearly two million members in India since it started operations in January 2010. A company statement says it has paid out more than $50 million to survey takers and reported revenue of $80 million in the past nine months.

But there is a catch. Of course there is.

To become a subscriber, you must first pay fees of around Rs10,000 which provides a ‘Surveys Today’ e-zine, an online magazine, for one year and the opportunity to enrol as s panellist. A panellist can be paid up to Rs900 to fill up two surveys of about 12 lines each.

Therefore, after completing around eleven surveys a panellist would start to earn an income from Speak Asia Online. Panellists can also earn money by recruiting other panellists to join and thus receive a commission.

This has left some detractors to conclude that Speak Asia Online is some sort of fraud, scam or Ponzi scheme and should be investigated or shut down by the Indian government. Speak Asia Online protests that it is genuine business and has broken no laws, offering to co-operate with the authorities if need be.

Supporters also point out that they are earning an income from Speak Asia Online as panellists and those complainants should mind their own businesses.

In order to assess whether Speak Asia Online is a genuine business, fraud experts would recommend assessing the following points in relation to Speak Asia Online:

Business model – does the model itself make sense?
This is hard to answer directly. Certainly there are genuine businesses which have operated for decades conducting surveys. But the surveys are focused, relatively small and usually conducted face to face to ensure quality. Speak Asia Online does not follow this path.

People can also earn money by recruiting other subscribers. This has generated a group or recruiters seeking to find new subscribers to continue their income stream.

Analysts have seen this as the trait of a classic Ponzi scheme, sucking in new cash to pay out to earlier subscribers. Speak Asia Online needs to demonstrate that this is not the case.

Does the subscriber need to pay?
Definitely and it is paid upfront. This can be viewed as a definite red flag for a possible scam. It has been noted that Speak Asia Online charges subscribers to be a panellist and receive an e-zine – smartly declining to promise that later payments will be made or else that this is an investment scheme.

Location of the business – does this make sense?
Not at first blush. Though Speak Asia Online is only active in India it has few employees or offices there. Instead, it is a registered company in Singapore. It could be argued that it makes sense for taxation but this doesn’t make business sense.

It has been noted that reporters from Star TV are said to have visited the business address in Singapore and found that there were few people present who claimed they were not involved with Speak Asia Online. This certainly raises more red flag concerns.

Business history – how long has it been running?
Not very long; about 18 months according to the registered documents held by ACRA in Singapore. It should be noted that the business has changed its’ name two times; from Haren Technology Pte Ltd to Pan Automotives Pte Ltd. Neither of these former names suggests that the previous business incarnations were internet based opinion operations.

A cause for concern.

What do the top people of Speak Asia Online say about the business?
Not much and not very convincing.

Speak Asia Online CEO (India) Manoj Kumar claimed during an interview that Speak Asia Online was engaged by ICICI Bank. Following a refutation by ICIICI Bank they there were not a client, Kumar back tracked and said that his earlier claim was a mistake. Kumar allegedly claimed a number of other prominent clients which were later found not to have any relationship with Speak Asia Online. Commentators stated that the CEO ought to know who his own clients are.

At a press conference in Mumbai, Kumar struggled to define exactly what Speak Asia Online does. He denied that they are a direct seller or a company that makes money based on referrals.

Is the company properly regulated?
Not really. It operates in an economic area which has been overlooked so far.

The Indian Direct Selling Association (IDSA) has asked the government to come up with a regulatory framework that will define direct selling, stipulate how it should operate and pass laws to protect consumers.

Meanwhile the Ministry of Corporate Affairs (MCA), Economic Offences Wing, market regulator Sebi and bank regulator Reserve Bank of India are reviewing different aspects of Speak Asia Online’s operations.

What other bad news has Speak Asia Online experienced?
The Singapore bankers of Speak Asia Online, United Overseas Bank, are reported to have declined to continue to be their bankers. Speak Asia Online claimed that they elected to change banks but the confusion suggests that United Overseas Bank no longer wanted to be associated with Speak Asia Online. Does United Overseas Bank know something we don’t?

 

Speak Asia Online may prove it’s detractors wrong and thrive in a new business sector in the budding Indian market. If it can be more transparent about the operations and exactly who its’ clients are, then it should be able to save the day.

Watch this space.

 

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Fraud Investigation page for further details and us send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Skimming cash frauds

Skimming is the term given to the type of fraud whereby cash from a customer is diverted before it enters the victim company. Embezzlement is the more technical term given to this practice and it is also known as an `off-book fraud’. Detecting and proving a skimming fraud can be fairly difficult as there is no definite paper trail to follow for investigators- the cash never entered the system and therefore is not obviously missed [though of course the theft will show up later as an inventory loss or a profit reduction].

As cash can be so easy to steal and use, any organisation which receives any payments via cash are at risk from this type of fraud. The collection points for cash – check out till, waiting staff, car park ticket issuer etc – are all vulnerable for skimming.

The most obvious form of skimming is where a salesperson receives cash as payment for goods or services but fails to place the cash in the register as a sale. Failure to ring up the full sale amount in the register allows the salesperson to pocket the cash without there being a shortfall in the recorded takings. The register tape / ribbon  is designed to record all transactions so that a reconciliation can be made to confirm that the correct amount of cash as indicated by the sales activity is present in the cash draw.

This operation of diverting cash by the salesperson can be quite difficult as the customer may require change or else may notice the failure to place the cash in the register. The dishonest salesperson may get round this by ringing up a `No Sale’ to open the cash draw and hope no-one notices. A manager or other employee may also witness the errant behaviour and then start to watch more closely. This is why most CCTV cameras in stores are trained more on the cash register and salesperson – rather than the customer – so that the video tape can be reviewed later to spot any thefts of cash.

Some enterprising salespeople have been known to tamper with the cash register so that when certain keys are pressed the transaction is not recorded on the sales tape. Thus, the salesperson can wait for a transaction where no change is needed and pretend to ring up the transaction but pocket the cash later when it’s not busy. This type of manipulation will usually result in a blank space on the register tape where the transaction would have been recorded.

One other option for the fraudster is to simply change or damage the register tape so that some transactions are missing and cannot be relied upon to perform reconciliation. Confusion over which tape relates to which period of business can be enough to muddy the waters and allow the fraudster to get away with stealing the cash.

The above may sound more like petty theft and no great problem to a business. Think again. A salesperson taking $100 a day can quickly drain a business of $6,000 in just a few months. How many retail businesses can afford to overlook those losses? A shop manager is in a position to steal more than a $100 per day and thus a poorly supervised organisation can hemorrhage cash and see profits flat line.

A fraud matter we handled related to skimming involved the manager of a gasoline station. Our subsequent investigations showed that he tinkered with various forms of skimming before he hit on one method which allowed him to steal hundreds of dollars each shift. He had realized that that the failure to ring up sales of gasoline would show up quickly in the lower level of gasoline left [gasoline levels were measured everyday by other shift managers]. Therefore, he chose to skim money from the hire of towing trailers. Customers could hire a trailer for a day for $100 and this was recorded in a separate hiring log.

The manager knew that if he focused on the towing trailers this wouldn’t show up as a loss of inventory. As the manager had the ability to manipulate the final daily figures for the station, he would ring up larger sales as towing trailer hire and then later `refund’ these so that he could take the equivalent in cash. Part of the way we could prove this fraud was that there weren’t any corresponding entries in the towing trailer hire log book and the manipulations occurred late in the shift when only the manager was present and had the power to correct entries. This escapade cost the victim company over $40,000 plus other fees to correct the problem.

What can a business do to protect itself from the simple yet costly fraud of skimming? Supervisors can’t be present at all times and as shown above, managers can turn bad too. To begin with, it is recommended that a business at least take these initial steps:

  • Conduct a fraud audit of the business focusing on cash collection and handling
  • Encourage all customers to request a receipt for every purchase
  • Have CCTV cameras positioned to observe the cash register space
  • Train managers on fraud awareness
  • Have an investigator or loss prevention officer make trap purchases at random times to ascertain whether any skimming is taking place
  • Make sure that all register tapes are handled properly and examined for any rash of `No Sales’, blank spaces, refunds or other issues
  • Have strict rules for cash counting and reconciliation at each shift
  • Consider having a fidelity insurance policy to cover theft of cash by employees

Of course, no system is foolproof over time so you need to keep your eyes open for any subsequent changes. One recent skimming fraud involved the manager of a store opening an hour early without authority and ringing up alls sales on the cash register. Before the official opening time, he would with the register tape and hide the used tape for use the next day. He was found out when an area manager arrived early for a meeting and noted that the store was already open.

This shouldn’t be confused with the incident in New Zealand where a computer error caused a supermarket to open for business during the middle of the night with no employees on duty. Fortunately most shoppers were honest and paid via the self- check out!

Do you need to know more about our services and how Regents can assist you with preventing fraud and theft? Simply go to our Fraud & Integrity page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Gift card vouchers and the link to money laundering

Gift card vouchers can be the perfect solution for a birthday when you’re not sure which present to buy. Simply pay cash at the store or shopping mall and transfer the same value onto the voucher to be used at the designated outlets. Travellers Cheques have been replaced by `Travel Money Cards’ following the same principle – customers deposit funds onto a separate ATM card which are available in various currencies. Incorporating a PIN, the customer can then withdraw the funds from ATM machines in a foreign country until the card is spent. If the card is stolen then the most that can be lost is the value still stored on the card.

But such convenience has also attracted fraudsters, organised crime gangs and terrorist groups to solve a problem they all face; how to move funds between individuals around the country and overseas without the threat of being apprehended at Customs for cash smuggling.
Recent arrests in the US have documented that some crime groups are increasingly using the cards, many of which are bought with “digital currency” via the Internet using fake credit cards or compromised bank accounts. With casinos and banks the most established means for money laundering and thus coming under heavier scrutiny for AML, medium scale money launderers are increasingly turning to `Travel Money Cards’ to distribute their illicit funds because they provide ease and anonymity.

Gift voucher cards are normally designated as closed-system or closed-loop cards because they can only be used at the retailers or shopping mall that issued them. Other than retailers, other types of uses for closed-system cards include telephone, internet, dining or hotels.

Whereas open-system cards (such as those linked with card companies VISA and MasterCard) can be used at most retail stores and many of them are useable as ATM cards where the card holder can withdraw the value on the card in cash from most ATM machines in the world.

Because these cards can also be reloaded with funds via online transactions, at a bank or via a cash-tills transaction, they’re an effective method for fraudsters, criminals and money launderers for distributing funds quickly and covertly.

Criminals can thus load cash onto multiple pre-paid open-system cards and FedEx the cards to their counterparts outside the country. The counterparts can then withdraw the funds in cash in their own currency with ease from local ATM machines. When the card is spent it can be discarded and the cash is untraceable. Recent DEA investigations into criminal activity spanning international borders have noted an increase in the use of pre-paid cards with bulk cash smuggling activity.

As the retailers and banks are set to gain when consumers buy these cards – the user has to shop in their store or else the balance says with the bank until it’s depleted – individuals and businesses often purchase large numbers of cards and this doesn’t raise any red flags. Thus a fraudster can place several thousand dollars on a retail gift card or bank card and not have to deal with a currency transaction report and it is unlikely to be recorded on a suspicious activity report. In fact, fraudsters often will divert attention by breaking a large-dollar amount into a number of smaller amounts at different outlets (the method of laundering sometimes referred to as `smurfing’ – named after the little blue cartoon characters).

Open-system cardholders generally do not have to disclose details of their own bank accounts. In many jurisdictions, the banks handling the money that flows through the gift cards are required only to conduct customer due diligence and customer identification procedures on the independent firms that manage the cards and not the individual cardholders.

Fraudsters can muddy the waters further by purchasing a number of cards from several different retailers or banks at different locations or else have a trusted friend to do so. The cards can then be carried on board a flight or else mailed to an associate interstate or overseas and redeemed there. An enterprising fraudster can even sell the cards on websites such as eBay, Gumtree, www.SwapaGift.com or www.CardAvenue.com. The cards are sold at a slight loss but it’s another way to convert the cards into funds.

Investigators and fraud examiners need to be aware of this relatively new method to launder funds by criminals and fraudsters. Whether they can spot company funds being used to buy these cards or else evidence that a suspect has been engaged in such activity [from web browser activity or emails], this may lead to unearthing a considerable fraud or other crime that needs to be pursued further.

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

India investigates Dehli Games corruption

The  new Indian sports minister has sacked the chief organiser of 2010 scandal-ridden Delhi Commonwealth Games as the coalition government suffers a string of corruption scandals and thus seeks to repair its own public image.

Ajay Maken said he took the decision to terminate Games chief Suresh Kalmadi and Secretary General Lalit Bhanot so that the inquiry can mount an open investigation into corruption allegations surrounding the $6 billion event held in October 2010.

The Games were intended to be India’s answer to China’s impeccable staging of the 2008 Beijing Olympics. However, the Delhi Games descended into a complete farce and were salvaged only after a last-minute mad scramble by the red-faced government.

Once the Games were finished, the government appointed  federal investigating agency the Central Bureau of Investigation to review allegations of corruption and irregularities in the construction, organisation and conduct of Commonwealth Games 2010.

Long before the actual Games began, corruption charges surrounded the London leg of the Queen’s Baton Relay, which lead  to the sacking of three senior officials in August. Subsequent inquiries by Indian anti-corruption watchdogs identified several irregularities in the awarding of contracts and identified several Games projects beset large-scale corruption.

The Games debacle resulted in Ashwini Nachappa, a former international athlete, teaming up with ten other international athletes spear-heading CleanSports India, a nationwide campaign to rid Indian sports of all types of crooked officials and rigged results for gambling, including those overseeing the games.

Investigations have revealed scandal after scandal involving officials with kickbacks, off-shore companies, forged emails, unjustified payments to bogus companies and inflated costs for goods and services ranging from cleaning to exercise machines. The final costs for the Games are expected to be over $8 billion – most of it paid by the tax payer and draining government resources.

India’s leading corruption watchdog, Central Vigilance Commission, highlighted the irregularities in more than a dozen projects and questioned the quality and finish of the venues. Huge piles of rubble and rubbish, a collapsed roof, hanging wires, leaky walls, broken tiles and an incomplete stadium became the visual staple of daily newspapers and television channels.

The government and police have been kept busy with the upcoming Cricket World Cup due to start in February 2011. The state of some of the venues has been criticized and there is the fear that the rampant illegal bookmaking syndicates will try to infiltrate the player’s dressing rooms and hotel accommodation.

Despite the recent disciplining of three Pakistani players for match fixing, the lure of easy money and the fact that nearly all gambling in India is outlawed means that ready cash flows around the stadiums and has the power to spoil the sport.

Do you need to know more about our services and how Regents can assist you with anti corruption, graft or misconduct issues? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Woolworth’s buyer and coffee importer charged over corruption

A senior Woolworths executive and an alleged co-conspirator both face criminal charges following a protracted investigation into a corruption kickback scheme operating inside Australia’s major supermarket chain.

In January 2011, Bill Harvey, formerly Woolworth’s national buyer for coffee, tea and sugar, was charged by Police with receiving or soliciting secret commissions and with conspiracy to cheat or defraud. Harvey was responsible for selecting the brands and lines of coffees and teas from a number of suppliers across Australia. Therefore, Harvey would have been required to frequently meet with current and prospective suppliers as well negotiate terms of contract for supply.

The allegations centre on the claim that Mr Harvey accepted a percentage of a ”promotional fee” from the coffee and tea supplier for the purpose of ensuring that the coffee and tea products were given space on Woolworth’s shelves.

One of Woolworths suppliers was Melbourne based LZ Enterprises, which is the Australian distributor of Arrosto Bello coffee and Cha Yuen tea brands. Robert Lever, now the former marketing and export manager at LZ Enterprises, dealt with Harvey as part of his task for promoting the brand.

Upon receiving this allegations, Woolworths undertook its’ own investigations and made a report to the Police. Harvey was subsequently arrested at the Woolworth’s offices. Internal auditors are checking to see if other products are involved in the alleged scheme and whether more offences may be detected.

The charges come almost a year after both were arrested during operations by police in New South Wales and Victoria. The matter came to light after a tipoff from a disgruntled supplier suggesting that corrupt activity was occurring.

Corrupt kick back schemes are nothing new for the major grocery retailers in Australia, Woolworths and Coles. In October 2009, Woolworths removed three buyers from the fresh produce purchasing department after investigations showed that the grocer was paying up to $20 per carton too much for vegetables from one of its supplier. In 2006, Coles fired an executive after a secret business deal came to light that the executive and the owner of Tasman Group Holdings, then one of Coles’ primary suppliers of red meat products.

When employees interface with suppliers and vendors on a daily basis there is always a likelihood that over time they may form an illicit alliance and seek to act corruptly. As demonstrated in the case above, it is possible to detect errant employees and have them arrested / prosecuted for this activity which can be so damaging to the company and the reputation overall.

In order to reduce the likelihood of corrupt activities between employees and suppliers, plus increase the chances of detecting such activity, it is advised to at least follow some of these suggestions:

  • Ensure that all meetings between employees and suppliers take place at designated locations only, usually company offices
  • Have all meetings documented and meeting notes made to detail what was discussed and agreed
  • Have managers randomly attend meetings to ascertain the demeanor and progress of discussions on pricing, quality, deliverables
  • Ensure that all proposals, agreements and communications are scrutinised by auditors and or legal departments
  • Issue a Code of Conduct outlining what constitutes corrupt or dishonest conduct and the severe penalties involved for this activity
  • Have all employees and suppliers / contractors read the Code and Conduct and sign that they will abide by this
  • Install a working `whistle blower’ program so that any party can make a formal complaint as to suspect activity
  • Have regular training and education on the perils of corrupt activities
  • Rotate employees between positions so as no to over familiarize them with individual suppliers

Do you need to know more about our services and how Regents can assist you with preventing internal theft and corrupt activities?

Simply go to our Internal Theft or Corruption Investigation pages for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.