Fraud prevention
What does Fraud Audit cover?
lost business
lost revenue, unrecorded income, credit note, bad debt, lost business due to excessive costs or others
excessive, unnecessary, fictitious costs
Misappropriate of Asset
Discretionary expenses
unnecessary commitment and liability
misstatement of account, bonus, sell out
Capital expenditure
Free Finance
Tax avoidance
Authorized Commission
What are trucking fraud?
dead truck
Unauthorized vendor
limited liability
fail to claim
excessive price
free service
do not pay according to quotation, e.g. two basis, min & unit price
using truck for airfreight
mix load of DG
chartered truck load and stealing space
compete for business
faked overtime
commission from customer
overstate size and mileage
long termination notice for renting truck
responsibility up to the insurance policy
loose carton or pallet
information
consolidation efficiency by customer, by time, by products
loss making report
idle capacity for FCL
purchasing power by routing
Why Fraud is so common in logistics?
Commission base industry
International company and transfer pricing opportunity
Complicated customer’s requirement
Fluctuating costs and revenue per kg per km
Using agency service
Urgent requirement
Excessive Costs can be charged back to customers
What are Symptoms of fraud?
Exhibits sudden wealth by employee
Rapid employee turnover
Staff is involved in litigation or financial difficulties
Specific benefit to particular staff
Lack of independence by procurement
Payment to third party without contract
Useless middleman/shell company
Faked approval signature
Continuous Narrow margin
Selling and buying a car or a flat between senior management
Last or the same bidder is marginally lower than others
Payment into personal account
Lost business due to frequent fail in competitive bid
Continuous idle capacity
Frequent loss on disposal of F &F and renovation
Bypass approval
Could you give examples of free finance?
Agency referred shipment with thin margin
Free interest on rental deposit
Advance to vendors
Prepayment to vendors
Sales & lease back
Could you give examples of Misappropriate of assets?
Borrow the fixed assets without returning
Steal the oil in truck, stationery in office
Using chartered truck for other business
Staff serving vendor company or other non-related company
Scrap fixed asset, pallet or packing material
Employee theft
Using idle warehouse space by vendor without leasing back
Using idle warehouse space for personal storing
Use trucking space for unknown transportation by vendor
Mix DG goods to normal goods
Sell at loss and lease back fixed asset
Make use of brand name
Receive without checking quantity and quality
Write off bad debt without valid reason
Could you give example of unnecessary or excessive outsourcing costs?
Charges that cannot be passed back to customers such as empty load
Overcharge by overstating kg, km, unit of measurement, min charge, calculation error, duplicate charge
Pay expense that should be borne by landlord
Do not terminate the unnecessary service
Using truck for airfreight
Waive volume discount
Charge normal rate for return load
Charge FCL instead of LCL
Pay higher than market rate
Take up agency expense or overhead
Over-specification or no specification in purchase contract
What are opportunity for fraud?
Cost plus pricing
High margin
High growth
Management dominance
Lack of internal control
Without accounting knowledge
Language barrier
Lack of local knowledge
No independent quote or/and urgent quote
Finance is a rubber stamp
Quality factors that affect decision
Could you give examples of personal relationship with vendor?
Previous driver
Past employee
Past boss
Vendor dominated by management
Could you give examples of overstatement of income?
Revenue Accrual to Debtor
Manual entry
No Accrual
Revenue recognition
Cost not recorded
Bad debt not written off
Asset lost not written off
Could you give examples of odd operation?
Change in routing or gateway without formal approval
Change in allotment to particular customer
Contract parties, invoice issuer and payee are not the same
Long payment terms and breakeven price to new customers
What are unnecessary commitment?
Accept Consequence costs
Accept illogical charges
Long term contract without exit cost
What are odds action by management?
Press for payment to vendor even before payment term
Do not withhold payment in the case of claim and compensation case
Divide into the contract into several contracts or contract with shorter period to by-pass senior management approval
Wrong base in proposal to pass the approval
Accept loss making business
Waive volume discount
Waive compensation for breach of KPI
No regular pricing review
Endure poor service, mix load, co-load, overload
and do not terminate contract with vendor
Do vendor job
No outsourcing and insourcing analysis, e.g. trucking service
Waive claim to insurance company
Immediate compensation by vendor instead of detailed investigation
Do not check credit rating of a new vendor
Order when there is an idle capacity
What are odds contract terms to vendor?
Immediate expiry date to bypass some senior management approval
Bypass procurement due to urgently or customer nominated vendor
No deposit held
Over-specification to vendor
Waive 100% contract backing
Sign contract with vendor before signing contract with customer
No penalty for late delivery
No tax invoice in China
Pay withholding tax for vendor without deduction from payment to vendor
Heavy penalty for early termination or long termination notice
Short payment term
Automatic renewal
Chartering service
Limitation of liability
Long term contract
What is unusual staff benefit?
Housing allowance
Entertainment
Travel
Apartment
Salary Tax
Advance to staff
Why is analysis on lost business important?
Left employee who joins the competitor
Vendor who compete for the business using the company logo
Lose business to Competitor due to excessive purchase cost and in turn selling price
Transfer the business to another company by existing employee
Vendor provides services to competitor
Employee sells the insider information to competitor
What are Fictitious costs?
Dead chartered truck
Ghost Employee
Repair services
Parking, oil
Entertainment & travel
Middle man agency fee
Recharged cost
Personal consumption, tax
Buying a company with license in running business
Overtime
Legal fee
Training & consultancy
commission
What are unreported revenue?
Waive charges by sales
Unapproved credit note
Omit to make billing
Scrap sales
Unrecorded income such as return of IIT, annual dinner donation
Waive volume discount
Additional discount to customer
Cash receipt by sales without reporting to finance
Billing error
Waive charges to set off compensation
Commission to staff
What are fraud types?
Unreported Revenue
Lost business
Excessive /Unnecessary Outsourcing costs
Discretionary expenses like legal, accounting & consultancy fee, removal, training
Allocated Excessive Overhead costs to branch or subsidiary, e.g. IT costs
Unreported Scrap sales
Cash purchase/rebate
Misappropriation of Assets, e.g., cash receipt
Unnecessary commitment to customers
Misstatement of financial statements
Tax avoidance
Free finance to Agency
Inter-company charges
Fictitious costs
Specific benefit to particular staff
Once off Renovation and warehouse removal
Excessive buying cost of fixed asset, truck and warehouse equipment, WMS
