CMC case study
QRail: probity in government contracting and tendering

Speakers:
Mr Geoffrey King
Chief Internal Auditor, Queensland Rail (QR) Limited
David Honeyman
Principal Adviser, Misconduct Prevention, Crime and Misconduct Commission

Abstract:
The objective of this session is to provide delegates with an insight into an actual fraud investigation from discovery of the fraud, the investigation process and outcome, as well as the actions taken to address the control weaknesses that allowed the fraud to manifest.

The presentation is in three parts:

• the discovery and initial analysis, which will show the types of inquiries that agencies can make to assist them to determine the likelihood of the presence of fraud
• the detailed investigation and outcomes, which will list the investigative steps, the analytical tools used, sources and use of documents as evidence, and major components that made up the brief of evidence
• insights and actions taken to address the control weaknesses that allowed the fraud to manifest and continue undetected for many years.

Case Analysis
This fraud occurred in a very large 24/7 heavy maintenance facility with large inventory turnover and a multi-million dollar budget. The initial fraud was uncovered by Internal Audit; however, the extent of the fraud became much larger as the investigations and analysis continued.

Initial investigations revealed suspected fraudulent activity between a service provider and an inventory control officer, where services were being paid for but not provided in full. Further analysis of the purchasing activity of the inventory control officer highlighted other suspicious suppliers, which established that invoices were being paid for goods that had not been received. Company searches of these suspect companies identified common addresses or directors. At this point the matter was handed over to the Crime and Misconduct Commission.

The CMC conducted the investigation using a multidisciplinary team approach. Resources such as Police, civilian investigators and Intelligence Analysts were used to progress the investigation; however, the major effort toward compiling the evidence which showed how the scheme operated was provided by the team Financial Investigator.

The CMC’s compulsory powers were used to obtain significant quantities of original documents and information from third parties. Police search warrants were used at the homes and businesses of the accused persons, and these provided further evidence. When added together the quantity of information and original documents demonstrated that the agency was being systematically defrauded through insider information and assistance.

At this stage the CMC’s compulsory powers were used in closed Hearings during which the accused persons were required to give evidence about their involvement in the scheme, and this process was highly valuable and effective.

Obviously, when a fraud of this nature occurs there has been a breakdown in internal controls. As a result, controls were tightened in relation to:

• vendor creation and master file changes
• inventory management
• procurement practices
• segregation of duties
• management oversight and monitoring
• expenditure review.