IBM, Poughkeepsie, New York
Bid-Rigging, Management Fraud
Roger was Too Busy to Chat
Hi-tech products can have a relatively short shelf life, which requires procedures including environmental to properly dismantle parts that are used, discontinued or deemed to be surplus. Counsel’s client had chosen through the bid process to contract with various vendors to obtain this service with their agreement requiring the vendors to share their sale proceeds from recycled parts and to not sell parts scheduled for scrap.
However, field investigators had found and confirmed the movement of scrap in the gray market and our mandate was to determine if any person or group of persons within a certain department of the company was involved. There are several issues to be addressed by the forensic accountant in a live internal investigation like this one.
In earlier cases, I touched upon the ‘purity of the company’ issue, the ‘con versus con’ interview approach and a belief that the human element is at least as important as the accounting for numbers. At the start of this matter, Counsel met with the division management in question to advise of our joint investigation with the Director of Internal Audit and to seek their cooperation. The ‘con versus con’ approach started immediately.
However, before the employees could be questioned, their concerns had to be anticipated, for example such questions as ‘Does management believe someone in this department has engaged in any misconduct or criminal activity?’ and ‘Assuming I cooperate, will I be guaranteed employment?’
Among the employees, the forensic accountant must establish creditability otherwise voluntary information may not be forthcoming. This is not easy because many people question the suggestion that an accountant can also be an investigator. Hence the investigative strategy is always flexible in terms of who to interview and when, sequence, topics, etc.
In this case, I started to interview Roger, (yes, ‘con versus con’ was in play) the leader of the department but he was too busy. Now think about this, if honest he would have given me all the time I required. So I knew the answer but now I just had to establish the trail of evidence. Then during an employee interview on the third day, a summary schedule of vendor bid prices was provided. A quick review and the document spoke, ‘rigged bid’. Several characteristics of a rigged bid were evident on this one piece of paper, an example of fraud knowledge at work.
About two months later, the leader of the department was requested to attend a meeting with the Director of Internal Audit and In-house Counsel. Toward the end of the meeting and the discussion of findings, Counsel extended his arms out to portray the scales of justice, with one hand higher than the other, to provide for some benefit of doubt. Then as Counsel mentioned one finding after another, the raised hand began to drop, significantly below the other hand. The leader was told that he had two weeks to balance the hands.
The leader, Roger St. Germaine and three others received early retirement and while the investigative phase took a couple months it was not full time. Sometimes the passing of time is an effective part of an investigative strategy to permit others to pursue their cover up efforts. This was a most enjoyable team effort working with internal/external counsel and the internal auditors.