Criminal Justice and Forensic Investigation – Fraudulent Supplier Analysis

QUESTION

You have been contacted by an Executive Manager (Mr Bitters) of XYZ Enterprises who informs you that the organisation has been the victim of a case of fraudulent invoicing by a supplier, Dark Side CC represented by its Managing Director (Mr Shady). This irregularity relates to Dark Side invoicing for services not actually delivered, invoicing fully for services that are only partially delivered, and inflating amounts on invoices and duplicate invoicing.

Conduct a forensic investigation into the above scenario by applying a structured forensic investigation process. Make sure to also focus your investigation on achieving the outcome of assisting Mr Bitters to consider the options available to XYZ Enterprises to resolve this matter.     (50)

HINT: You are expected to demonstrate your knowledge of the forensic investigation process.

Experts Answer on Above Question on Forensic Investigation

Identifying the allegations and objectives

It is important to identify four different forms of suspected fraud by Dark Side CC which includes invoicing for services not provided, full amount charged for the services that were partially completed, inflating invoice amounts, and duplicate invoicing. The main objective is to identify what happened, who was responsible, how much is the loss to XYZ and how it can be recovered.

Planning of Investigation

This will require clear definition of the investigation period, affected suppliers and transactions, employees responsible for it and evidence needed. An investigation plan is required that includes evidence, transaction testing, interviews and reporting.

Collecting and preserving evidence

It is necessary to obtain contracts, purchase orders, invoices, payment records, bank statements and approval records. Preserve electronic records and evidence and maintain a chain of custody.

Examination of invoices

Each invoice needs to be matched against the contract, purchase order and actual services received. This requires a proper test of fictitious services, partial delivery, inflated invoices and duplicate invoices.

Trace payments

Tracing payments required determining which invoices were approved and who is the person responsible for such approval, along with whether payments were made. A comparison of the amount paid against the amount due is important.

Conduct interviews

It is important to interview Mr Bitters, procurement staff, accounts payable employees, service managers and invoice approvers. Mr Shady should also be interviewed with respect to the disputed invoices, and the statements should be compared with documentary evidence.

Quantifying the loss

It requires the calculation of financial loss for each fertilian transaction which can be calculated as loss equal to amount paid deducted by amount actually due. It is also essential to separate the losses caused by fictitious services, partial delivery, inflated amounts and duplicate payment.

Identify responsibility

This requires identifying whether the fraud takes place from Dark Side CC or whether XYZ employees supported, approved or failed to detect the irregular invoices.

Options available to XYZ enterprises

XYZ can consider demanding repayment from Dark Side CC, negotiating a settlement, terminating the supplier contract, taking legal recovery action, referring suspected criminal activity to relevant authority, and strengthening invoice controls including three way matching and duplicate invoice check.

Conclusion

The investigation should focus on identifying the fraudulent invoicing method, quantify XYZ Enterprises actual loss, identify responsible parties and provide evidence that support recovery or legal action.

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