Pewaukee, WI: Featured guest speaker Maribeth Vander Weele, president of the Vander Weele Group, a Chicago firm that provides corporate investigations, investigative intelligence and data analysis to protect fraud, presented various methods of uncovering and preventing fraud at a recent lunch and learn session sponsored by the Wisconsin Manufacturing Extension Partnership.
Vander Weele’s firm has managed scores of investigative projects, focusing on manufacturers in the private sector. It has provided onsite consulting services to manufacturers in the United States, China, Malaysia, Singapore and Mexico, and remotely in the Middle East, South America, Canada and Europe.
A former award-winning journalist for the Chicago Sun-Times, Vander Weele provided a number of real-world examples of manufacturers that have been hampered by the fraudulent activities of their employees.
In one case investigated by her firm, a buyer for steel parts at an international manufacturer of valves entered into a kick-back scheme with a supplier. After years of handling purchases, the buyer had become disgruntled with the company and felt it didn’t pay him enough.
The suspicious activity went undetected until a new owner took over the supplier, who then contacted the valve manufacturer’s chief executive officer to inform him of the suspicious situation. Vander Weele’s firm then was hired to conduct an operational audit of the valve manufacturer. After combing through computers and documents, unusual pricing patterns were uncovered. The fraud, it was determined, had been carried out for years.
In the end, the buyer signed a confession, admitting to the fraud, which resulted in $1.3 million in lost funds for the manufacturer. Nearly $925,000 was recovered within a day. The manufacturer recovered the remainder through insurance. Others haven’t been so fortunate, she said.
“It’s really important to have employee crime insurance,” Vander Weele said.
Insurance can cover as much as $50,000 for an investigation and also will repay funds that otherwise can’t be recovered.
She recommended that manufacturers periodically rotate buyers if they are in a position to do so in order to minimize the threat of fraud.
Fraud in a manufacturing environment can be carried out in a number of ways: black Market diversion; check forgery; embezzlement; falsified expense accounts and financial statements; payroll fraud; and the theft of products and product ideas.
Vander Weele said she conducted a project for a Fortune 500 manufacturer that focused on fraudulent expense account expenditures. The investigation, which resulted in about a dozen arrests, allowed the manufacturer to reduce its annual credit card expenditures by $5 million to $7 million.
Vander Weele also relayed a story about an employee at another manufacturer who put laid off employees back on the company’s payroll but changed their direct deposit bank account numbers to her own. A simple data analysis would have revealed the issue, she noted.
Employees often are motivated to commit fraud for a variety of reasons, including gambling or drug habits and large medical and other bills. Major amounts of cash or processed checks on hand and inadequate segregation of duties can leave a company ripe for fraud, Vander Weele said.
Many frauds are detected when a key person with financial responsibilities takes a vacation. A reason those who commit fraud often don’t take time off is because frauds can be discovered during a reconciliation of the books while they are away. This should prompt manufacturers to implement mandatory vacation for employees, she said.
Red flags that a fraud is being committed include: odd pricing patterns; inexplicable excess inventory; dramatic increases in returns, discounts and credits; and unusual increases in scrap.