Corporate Investigation - Case History

The client was an international communications company. The Head of Payroll took maternity leave and a temporary replacement was recruited without any pre-employment vetting. The company placed great confidence in their system of financial controls, especially following a recent review by a large audit practice.

Unfortunately the controls had never been tested by an experienced fraud investigator and their first test came from an experienced fraudster. The new employee had experience of these matters - as effective pre-employment checks might have shown. Indeed, she had served two prison sentences for similar offences and we will never know how many successful operations had gone undetected.

In the client company payroll system, before any salaries were paid, each member of staff was assigned to a department. The staff of each department would then be listed in a report detailing who was to be paid and how much they would receive. Departmental heads were then required to sign-off each report before any payments could be executed. The company believed this would avoid all possibility of 'ghost' employees or abnormally large payments to real staff.

The new Payroll Manager behind this fraud simply created an additional department making herself the departmental head and staffed it with individuals using the personal details of ex-employees, each of whom had left behind a record with their name, date of birth, address and national insurance number.

The only new data was the bank details for BACS payments - which were for accounts controlled by the fraudster herself. The controls were thus circumvented. Even after the discovery of this deception the client company was unable to accept that they had been defrauded. They insisted the control system was fail-safe, however, the Payroll Manager proved it was not.

The system generated an 'exception' report to the financial controller whenever there was a substantial change to the overall figure paid out in salaries in any month. The fraudster therefore input figures for each of her 'wraiths' showing them due a substantial tax rebate for overpaid tax. These repayment figures were then deducted from the amount to be paid to the Inland Revenue and Department of Social Security so the amount leaving the company bank accounts was similar to routine months. Payment was allowed, detection was avoided and the amounts stolen were significant.

The fraud was investigated; a resulting file passed to police who had been kept informed throughout; the fraudster was arrested, charged, tried and imprisoned. The fraudster's assets were located and substantial funds were recovered. As their final act the investigators advised on new systems of control - very similar to the last but enhanced by considerable understanding, not just of systems, but of how they are abused - knowledge gained in many years of practical experience. The system was easy to use and blended well with the company's existing practices.