St. Valentine's Day massacre (revisited)

A false billing scheme case study, part 2

By Joseph R. Dervaes, CFE, CIA, ACFE Fellow

joseph-dervaes-80x80.jpg   Fraud's Finer Points: Case history applications




As we discussed in part 1 of "St. Valentine's Day Massacre (revisited)" in the July/August issue, Alex was the assistant operations manager of a sports dome in a large Washington city. Because of his key position in the organization, he was able to compromise the internal control system by acting in collusion with a legitimate vendor to manipulate purchasing transactions and cause his employer to issue disbursement checks for personal benefit. This scheme resulted in losses of US$491,829 for 10 years.


Below, see a copy of one of the actual false vendor invoices from this fraud (Figure 1 below). This invoice contains several "red flags" that went undetected by the sports dome, the city and the city's external auditors. Would you have been able to spot these clues before the city's police department detected the fraud by other means? Once again, review this invoice carefully, and let's find out.

Here's the most important red flag on the vendor invoice — the confusion over whether an employee picked up the item purchased from the vendor or whether the vendor delivered the item purchased to the sports dome's central delivery destination. Were you able to identify this red flag?


While the invoice indicated that the vendor delivered the merchandise to the sports dome, it also showed that the transaction was placed in "will call" status, meaning that the assistant operations manager would pick up the merchandise at the vendors' business. Obviously, both actions can't be true. Since Alex received the item and signed the invoice rather than a staff member at the central delivery destination, this proved that he actually picked up the merchandise at the vendor's business. This issue could also be resolved through a quick telephone call or a brief visit to the vendor. 

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