If you think that could never happen at your operation, think again!
If you find yourself reading our blog posts and thinking “that could never happen here,” I can assure you that it can. In every fraud case we’ve written about in the past 12 years somebody in the defrauded organization was thinking the same thing.
I’ve been in the timber security business for many years now. I’ve helped a wide variety of timber organizations with fraud prevention, detection and prosecution. Trust me; it is better to be proactive than try to recoup your losses. It’s better to set up a control environment before you have problems than to be fighting to get your money back when you’ve been ripped off.
You will recall in the March post, we talked about the items required from Joe Garrard in order to purchase timber. The list is below:
· Tract Name
· Timber Cruise Summary for volumes on each tract
· Number of Acres
· Miles from the Mill
· County Located
· Payment Amounts and Check Numbers
· Comments of any Special Stipulations on the tract
· Anticipated Cut and Haul rates needed to Harvest the Tract.
That is a good list but it wasn’t good enough. Joe Garrard had earned a position of trust, so when he provided the paperwork mentioned above, Mr. Keadle and his accountants would issue a check for the purchase amount. They didn’t consider that the tract purchase information provided was fake. Most folks wouldn’t think that tract names, timber cruises, acres, and volumes could be totally fabricated, but in some instances that is exactly what Garrard did.
Many organizations are concerned about filling the tract files with the appropriate paperwork, and indeed as an auditor I promote that idea. But when the paperwork was or is fake, it doesn’t matter. A good procurement forester for any company knows a reasonable per acre value for tracts in their area, so it can be easy to make falsified information look real. In this case, the perpetrator had worked 14 years in the same region, so he knew exactly how to make up a realistic-sounding tract.
That leaves the question, “How are you going to combat fake documents in your business’s procurement operations?”
The answer is to require the above list of information and add a few more. I recommend adding the following additional pieces of information to your tract files:
· Location Maps
· Tract Maps
· Cruise Maps (with plot center GPS points to provide audit trail)
· Latitude/Longitude of the entrance and tract center
· Escrow Statements
· Bidders List and Bid assumptions
With this additional information, managers or auditors can pull the tract files and see for themselves how the tract was purchased and then go to the field and inspect the tract to make sure the paper matches the field. In fact, with all the new technology we’re using these days, collecting all this information and more is routine for most.
This “field verification method” is a key component in combating fraudulent documents. As you may recall, recent cases valued at over $4 million dollars (June and November 2019 blog posts) were committed using fraudulent documents. Those cases have served to raise awareness in the forest industry auditing worlds as audit teams are increasing the sample sizes during the audit and visiting the field to verify the documents and ground conditions match.
If you are a manager in a small company that doesn’t have auditors, I’d encourage you to do the job yourself. Don’t assume your small business is insulated from fraud because you know everyone and see all the key metrics of your business. The Association of Certified Fraud Examiners 2020 statistics contradict that feeling of invulnerability. We’ll cover those statistics in a future post or check it out yourself at the www.acfe.com.