Peter Parillo, CFE, CPA, Director of Internal Audit
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.”