Housewife becomes Informant

The forensic accountant must understand the cardinal rule of protecting the informant.

Quite often, a secretary will become the informant, however, in this case, the informant was a housewife and the alleged beneficiary of kickbacks, a division head of a public company.

The housewife heard the rumor from the receptionist working for the vendor, the alleged payor. The Director of Corporate Security Jim Poirier for Alcan called for assistance.

It is tough, particularly as a jolly-faced accountant to try to convince a stranger to completely trust your investigative skills. But she did, along with her friend, the receptionist who then told the President of the company that the word was out and as she believed, he, very upset, agreed to assist in any way.

Forensic accounting is much more than paper, in fact usually the paper comes second and the people come first. As a matter of interest, the bad apple had taken kickbacks worth $120,000 over 10 years. The receptionist grew tired of this practice, but with no corporate ethics policy and concern for her employment, she was forced to go outside her employer for relief.

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Oil Producing Bribes

When a company’s management retains a forensic accountant to meet vendors regarding rumors of kickbacks, it obviously starts a lot of behind the scene movement between the payor and the payee when there is substance to the allegation. The phrase that describes such activity is simply actions not in the normal course of business, which can be reflected in both the personal and business relationships. For the forensic accountant, the question is whether or not a bad apple exists and the first challenge is to maintain the purity of both organizations.

I consider this challenge to be an ultimate test of professionalism because in the end there may not be a bad apple and everyone you touch during the investigation will work together after you depart. Ideally you could be Jasper the ghost, but then that might be too scary, so play the role of accountant, very conservative and most non-offensive. In fact, being a ‘green-eye shade’ accountant is a distinct advantage in the investigative role. Now, it is time to meet the vendor and request access to his books and records, a true test of the right to audit access clause. I am neutral, if he says no he could loose his client’s business and if he says yes he could loose his client’s business. He provides the records and I find the payments. Now, he alleges extortion. Point is the process is not unique; it is part of the knowledge of fraud, with each case different yet, in many ways, the same. It is human nature at its worst.

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VP Construction costs $21,500

This case gave me my first experience giving evidence in a bribery trial, which is legally described as “unlawfully accepting a secret commission.”

Kurtz was convicted in February 1977 for receiving $21,500 as vice-president of a construction company. At issue in the case was the question of who was really the guilty party, the payor or the payee. From the payor’s perspective, it is essential to examine the family of companies associated with the contracting party when looking for the source of the payment. It will be somewhere, because the payor views the payment as simply another cost of doing business and therefore tax deductible.

For a forensic accountant, however, a bribe investigation is another example of the need for a free-floating mind to identify all the possible sources of funds before you begin to eliminate and narrow your focus on the paper trail. At the same time one should be cognizant of the tendency for the bribe to be paid soon after the benefit is conferred, part of the fraud knowledge.

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One Bank Manager costs $10,000

This is a case of a bank manager eager to promote his loan program to meet his business objectives. There is nothing wrong with the objective but for the receipt of funds paid by the bank manager’s client to a company owned by the manager’s wife.

Again, it is the human perspective, which requires study here, and that is why I include this case.

The client’s loan amount was $1,647,000; the six payments to the bank manager’s wife’s company totaled $10,070.18. Clearly, the year, 1980, had not been good.

Again and again, I have seen professionals sacrifice their careers for such minimal amounts. I classify such types as ‘low class’ as compared to those in the ‘high class’ who defraud for millions and put it away in offshore tax havens.

The lesson learned for the forensic accountant? Think small!

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