Case study: oversupplying for personal gain
An irregularity noticed while processing invoices was reported to the CEO at the City of Stonnington, who called in a private consultant to investigate.
The investigation uncovered how an employee within the facilities team had been over-ordering alcohol, then on-selling the surplus stock for personal gain. He did this by distributing alcohol costs across a range of council cost centres, deviating from procedure while keeping below his financial delegation of $6000 so as to not raise the alarm. The employee was suspended as soon as the fraud was detected.
The total detected frauds were more than $620,000 over at least five years. In November 2014, the offender was sentenced to three years and 11 months jail (with a non-parole period of 18 months).
The council has since implemented a Fraud Control Plan in addition to its existing Fraud and Corruption Control Policy. Staff are now subject to ongoing fraud awareness training, reinforcing the importance of reporting suspicious behaviour.
“The key lessons learned include that bulk, saleable items (such as alcohol) should have a double accounting process applied. Fraudsters identify the on-selling opportunity and will find ways around robust processes to increase their income or power. Procurement policies and structures that grant permission for delegated employees to order and expend funds should have their approvals tested from time to time to ensure compliance. This should include the CEO who is often left without a double accounting process due to their ultimate powers.”
City of Stonnington Manager, Risk Management and Contracts Compliance, Bernard Mulholland
Note: This case study has been produced with permission from the City of Stonnington based on an investigation they conducted.