This month, we're showing how to "look behind the curtain" to uncover fraud using a sole-source contract as an example. This is when a contract is intentionally written to go to a particular vendor with ill intent.
Answers to Last Month's trivia about Plagiarism:
You can check for plagiarism here: https://plagiarismsearch.com
Remember the word “fraud” is just the starting point of the discussion. There are all types of fraud. Plagiarism is just one type. Do not limit yourself when you discuss the word fraud.
Last month we discussed humans. This month we will discuss documents. Let’s be honest, auditors love documents. The more documents the better. If there is a document, it must be okay. (You guessed it, I am being sarcastic. Sorry!)
It’s significant to note that documents are one of the key inhibitors to the successful use of artificial intelligence in fraud detection. Why? Remember what I’ve said before – you need to look behind the curtain.
This month, we’ll show how to look behind the document curtain. The documents provide information, it’s up to you to put the story together.
You need to figure out what story the documents are telling you. Is it a tale of compliance? Circumvention to commit fraud? Corruption? If you remember nothing else from this blog, remember in that in the fraud and corruption business, documents are used to conceal the true story.
Let’s start with a simple example. Your company has a policy for sole source selection of a vendor. It is a written policy. You see that there is sole source form, the form is properly completed and properly approved. So, this is a story of compliance and everyone lives happily ever after, right? Not so fast.
Let’s take a look behind the curtain.
The documents you examine are a representation. The documents attribute that representation to a human and become the basis of transferring assets to a human.
Could there be a “circumvention to commit fraud” story? I would start with the contract requirements. Are the requirements necessary, vague, or restrictive?
Let’s assume this story seems to start with vague requirements. Be careful. Do they seem vague because of your lack of knowledge? Or are they vague because they are not consistent with industry standards?
Once we have determined the requirements are indeed vague, we need to decide if that is with intent or lack of due care on the part of the manager. I suspect it would be less controversial to cite lack of due care. But let’s be honest, if you want to make the NY Times Best Sellers, your fraud story will be more intriguing than the compliance story.
Maybe the story starts not with vagueness but rather specificness. Are the requirements are written in such a manner that only one vendor could meet them? As an example, assuming you want to purchase fraud auditing services, you could write:
The vendor must have over 40 years of fraud audit experience, must have published his theories in multiple sources, regularly speak at conferences, and have conducted fraud business in over 40 countries.
Now your story will need to explain why the restrictive nature was not necessary to accomplish the business objectives.
The critical part of the story is the facts you can cite to support your opinion that the requirements are either vague or restrictive in such a way that it could be fraudulent. The story must be informative, convincing, and accurate.
To tell this fraud story, you must be able to demonstrate a “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to their detriment.” Whereas to tell a story about corruption, we need to talk about the “act of doing something with an intent to give some advantage inconsistent with the official duty…). Quotes are from Black’s Law Dictionary.
I believe in a writing class that the fraud story or corruption story would be our theme. FYI, “The theme of a story is the underlying message or concept that the author is trying to convey to the reader.” Source Study.com
The next part of the story is why this vendor is or is not a true sole source. I would suggest you start out by understanding the selected vendor’s credentials. You will need to search for the company name, officers’ names, and other key individuals. Who knows, maybe you will uncover a conflict of interest. I like stories with twists.
If we have confirmed that the selected company has the required credentials, we next need to search the marketplace for other qualified vendors. Or, stated differently, the representation of sole source on the document is false. See how the document is part of the story?
To do this, you will need to establish with a reasonable degree of certainty that there are other vendors capable of meeting the company requirements. Yes, this will take some work. Yes, you will need more than the internal documents. Yes, you may have to get out of your desk or cubicle. You may even need to talk to humans. You will need to research your topic. In this stage, you want to either refute or corroborate the sole source representation.
Suppose you have an indication that there are other options, and that the chosen vendor is not the only one that could meet the requirements. This is only part of the story. Now you need to establish intent.
In this part of the story, you need to indicate whether the business manager intentionally made a false statement or was simply lazy. As you think through this, each part of the story becomes more difficult to write. But not impossible.
You most likely need to go to the world of circumstantial evidence. In this part of the story, it will be the weight of all the tidbits you learn about the purchase, the vendor, and the internal business manager.
Now, finally, You are at the last chapter of your story. How will it end?
Remember, the documents are the starting point of your story, not the whole story!
Next month’s theme will be….? You must admit we all like a cliffhanger.
In last month’s blog I said there are different types of fraud, so have you ever heard of friendly fraud?