Here at Source One, we strongly believe that strategic sourcing doesn’t end when a contract is signed. Proper and consistent auditing of supplier performance is required to ensure that anticipated savings are realized, and that suppliers are performing to the appropriate service levels. Sometimes even more egregious contract violations can be uncovered through audits, as our partner firm TheIntelligenceGroup discovered. Names have been changed to protect the guilty and the negligent.
Better Distribution Co. was a midsize $50 million distribution company based in a major metropolitan area. After hiring a new accounting firm, they quickly suspected it had been victimized by internal fraud. The Intelligence Group (TIG) was dispatched to assess the situation and meet with management. Through a review of procedures and records, several logical suspects emerged. In order to commit the fraud, access to the company’s sales and accounts receivable system was required.
TIG immediately reviewed company records regarding the suspect employees, and implemented supplemental background investigation steps including financial background, criminal and litigation records, and corporate affiliations / ownership. TIG also recommended deploying a software monitoring program to notify management of sales and accounts receivable system activity by the suspects. Within 24 hours of implementing the program, several of the suspects accessed the monitored portions of the system.
That evening, a digital forensic team covertly imaged the suspect’s computers. After a digital forensic analysis was performed, TIG identified evidence of the user canceling a sale after the merchandise was shipped, but before an invoice could be generated and the order posted to the accounts receivable system. Additional records were identified indicating a significant account of the salesman, Best Distribution Services, to have an inordinate number of orders cancelled over a three year period. Better Distribution’s delivery records indicated otherwise.
By the end of that week, the background investigation revealed that one of these individuals, a 20+ year employee of the firm, had serious financial problems, while another was convicted of theft from another business 5 years prior. Best Distribution Services turned out to be a corporate partnership owned by three of the five suspects and their family members. The forensic computer analysis also revealed temporary web based bank records along with inordinate amounts of web based email threads that provided prosecutors and our client with a leg up in seeking financial restitution.