Defrauded Facilities: The $400,000 Question
During 2018, I undertook an operational assessment and governance review for an Australian waste management facility operator to prepare for broad ranging industry changes.
Fraud Case Study
This was one of the 163 waste facilities assessed in a case study that spanned just over 12 months. The nature of the facilities assessed was broad. It included commercial and LGA facilities, Resale shops, Landfills, MRF’s and Transfer stations, weighed and non-weighed sites, Rural and City locations.
The primary intent of facility visits undertaken within the case study were review operations and process, assess gatehouse methodologies, deliver business process and change management, and assess cash or financial risk. Fraud identification wasn't a key intended outcome but, as a CPA qualified industry consultant, fraud presented itself to me as a key issue during the visits.
This organisation operates multiple facilities, both weighed and non-weighed, and has strong risk and process management methodologies. However, a review of transactional data following a site walk through, indicated a single process on site which was contrary to what the system would expect. Waste types being stockpiled did not look as expected, nor did they properly reflect the volumes that a review of transactional data indicated would be onsite. This in turn led to a further review of random transactions across a limited selection of products and led to a review of clients, transporters and general pricing across the same range of products.
The outcomes of the transaction and data setup review identified a systematic fraud by staff incorrectly identifying products and subsequently manipulating price. This practice had been in place for three years at a potential $400,000 lost revenue per year. Gatehouse, site operations, contractors and internal team members all involved.
It was quickly noted that while it seemed that intent existed at the commencement of the fraud, it was likely that over time the approach had become “friendly fraud”: fraud without intent or fraudulent process becoming commonly accepted as operational process.
A lack of oversight – or more importantly a reliance on trusted process – had lead to potentially $1,200,000 in lost revenue in three years.
Factors that contribute to "friendly fraud" occurring:
Facility owner at arms length from operations
Contractor for kerbside collections being came contractor for facility operations
Lack of annual stockpile surveys
Uncommon product naming conventions
This case study was one of over 150 waste facilities assessed where fraud became a consistent theme. If you’re interested in seeing an overview of fraud in the waste and resource recovery industry – head over to this blog.
Reach out if you’d like to talk to us about the common types of fraud identified and the indicators for fraud. The assessment continues and every new site visited is an opportunity to continue the case study!
Will your facility be next??