Coveted Financial Thwarts Theft of Thousands: Two Case Studies

In the non-fiction bestseller Blink, author Malcom Gladwell illustrates the priceless value of expertise, through examples of highly skilled people who can see an ordinary situation in many dimensions, often recognizing a value or danger which is simply not apparent to others.

From time to time, a Chicagoland client of Coveted Financial is unpleasantly surprised when the skilled perception of our consultant discloses hidden theft in their business.

Case 1: Coveted was brought in to help improve accounting practices for a fairly small client. The entire staff consisted of one person each for Sales, Operations and Finance, plus one admin, so they were not large enough to apply standard anti-fraud safeguards, such as separating approvals from payments.

The small staff was always overloaded at month end, so the books were never up to date. When the owner called in Coveted to help, we began with our standard process, streamlining work flows and establishing best practices. Then, during one review of payment transactions -- our consultant blinked.

One unusual transaction made her curious. That made her look deeper. Something was wrong with the repayments in an employee incentive program. Large amounts involved the person who administered the program. That drew attention to the authorization of a pay raise…for the person processing payroll.

Coveted found multiple fraudulent expenses, all involving the company controller. In total, the theft was about $10,000, which the controller had used for personal expenses and home improvements. Quite cleverly, the amounts were not enough to draw notice on their own, as long as the accounting system remained too cumbersome for clarity, and reports were too imprecise to show the owner that these payments were out of order.

Case 2:  Coveted detected bid rigging within the construction division of a large Chicago company, despite the fact that the company was well-staffed, with both in-house accountants and outside CPAs.

This sophisticated client understood good accounting practices, so they were careful to require three competitive bids, based on flooring dimensions which would be applied to hundreds of apartment units.

Unfortunately, an inside project manager colluded with one contractor to falsify the bid. Only this contractor knew the true dimensions, so the other bidders were too high. Our client overpaid by more than $100,000, and the winning bidder paid a kickback to the project manager.

Coveted Financial detected this fraud based on our broad experience with construction in the Chicago market. In our review of job costs, the square foot cost of the flooring made our analyst blink, so he began to dig deeper.

Why wouldn’t the staff accountants (or outside CPAs) have detected such a fraud? In most companies, the inside staff are focused on reporting and analyzing results, not validating operational costs.  CPAs are focused on tax strategies and other higher-level, longer-term concerns. This fraud was expertly hidden, once again requiring breadth of experience to see what most people would not.

Thankfully, fraud is easier to prevent than to detect. To learn more about how Coveted Financial helps our clients keep payments secure meet with us today!