Tuesday, December 8, 2009

FRAUD – Telephone Number and Signature on the Purchase Quotations

Series FRD/02/2009
Well…this is another interesting fraud case discovered during internal audit of an engineering company.
The purchasing manager of this engineering company was well accustomed with all organizational purchasing processes as well as business processes followed in the market. Smart chap, always starts the day at 9.00am, his behavior in the office was always easy going, he always believed himself in his capabilities and a sweet talking person.
The purchasing process of the organization strongly recommends to invite at least 3 quotations for purchases above INR 100,000. Mr. Manager strictly followed this process for all purchases above INR 100,000.
During purchasing audit, we found that a Purchase Order valuing INR 980,000 for purchase of Stores cupboards was supported with 3 quotations. All three quotations were apparently invited from 3 vendors and they were read as below
1. M/s Trimurti Enterprizes quoted - INR 10,95,000
2. M/s Gururaj Bros. quoted – INR 9,80,000
3. M/s Gajaraj Enterprizes quoted – INR 9,75,000
Quotation of Gururaj Bros. was selected due to lower price and their reputation in the market.
The transaction prima-facie appeared to be straight. However, a careful analysis of the quotations revealed following 5 facts–
A. All three vendors located in the same locality.
B. All three letter heads (on which quotation were given), were made up on ‘Charminar’ brand bond paper.
C. One telephone number was common in all three quotations.
D. All other telephone numbers and fax numbers other than #C above were either fake or dead.
E. Signature on all three quotations were made in blue ink, although different, careful look suggests that it appeared to be signed by same person.

All 5 facts joining together suggest that this may be a case of fraud. When the case was reported to the management, the internal investigation was carried out. It was found that Mr. Purchasing Manager had collide with another few vendors in purchasing worth INR 76,00,000 over 8 months. He confessed that he used to dump openly invited original quotations and replace them with the fake quotations given by the winning vendor.
In above case, all three quotations were forwarded by the same vendor and a kickback arrangement was made with Mr. Purchasing Manager. Above 5 silly mistakes costed that vendor not only to loose the contract, but also future business.
The Purchasing Manager also lost his job. Someone told me that he joined Chota Shakil's Dubai based Forex Office. Another insider also told me that the Investigation Chief was found guilty of accepting bribe from his colleague, about a year after this case. If that is true, then it may be considered as an example in my study of organizational cultures.

Disclaimer – As per Chartered Accountants Act, 1949, information obtained during the course of audit is confidential and cannot be shared or published without specific approval from the management. Writer of the blog is a qualified Chartered Accountant and only intend to share the fraud cases. The fraud case referred above should in no case be construed or perceived as specific to any company/organization/legal entity/association of persons/any individual. The purpose of blog post series on fraud is only for the purpose of brainstorming. Any action/inspiration based on this blog post which lead to any fraud, will be the sole responsibility of the user. Writer of the blog is a person with highest standards of ethics and honesty.

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