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Case Study: West Coast’s Solution
Since there is no apparent requirement to disclose actual or potential conflicts of interest, there are some deficiencies with respect to hiring practices and there is no proactive review for potential fraudulent activities at West Coast, conducting an investigation in a phased or scaled manner might be the best solution. This would include the following:
- Commence an interview with Contract Admin obtaining as much information from her as possible.
- Take appropriate steps to secure information that may be relevant to the investigation, including restricting Joe access to such information.
- Gather as much information with respect to the bids that were handled by Joe, and then analyze this information to determine the level of changes and number of change orders. Evaluate the information obtained in the context of other projects that Joe has managed, as well those projects his peers have managed. Factors to be considered in such an evaluation might include the nature of the underlying change order; the completeness of supporting documentation and vendors and subcontractors involved; and evidence of review and approval of the changes.
- Conduct public records searches on Smith Mechanical to facilitate understanding of its owners and key employees, determine if any records contained adverse information, and identify any other information that may be relevant to the investigation.
- Gather information relating to Joe that may be relevant to the investigation, including:
- Company cell phone records to determine the level of contacts with key individuals
- Travel and entertainment reports (and supporting documentation) submitted by Joe to determine who he has entertained, as well as the timing and location of those meetings
- Copy of his personnel file to facilitate the identification of potential conflicts of interest or other information that may be relevant to the investigation
- Secure Joe’s company-issued computer, and make a forensic image of its contents. It is preferable to secure his company-issued computer in an unannounced manner. The contents of the computer can be analyzed to identify relevant electronic documents, including e-mails. Deleted information may be restored. The analysis of e-mails may identify people with whom he was corresponding and the subject matter of that correspondence. Joe might assert privacy issues with regards to the contents of his company-issued computer, but generally speaking, companies have a right to the information contained on computers owned by them, not withstanding who the custodian of the machine is. Legal counsel should be consulted on such questions.
- Consider making inquiries with Technology about the issues they raised regarding the billings and change orders, and obtain relevant information.
- Identify individuals who may have information or knowledge relevant to the investigation, and conduct interviews with these people.
- Conduct an interview with the subject of the inquiries presenting any relevant documentation gathered through the steps previously identified.
Throughout the investigation, the investigator assesses the information obtained with a view toward the weight of the information providing support for the investigator’s conclusions.
Investigation Closed
Because of the phased approach taken during the course of the investigation and as a result of the information gathered at each step, West Coast was able to gather enough relevant information that was shared with Joe during his interview. In light of this information, Joe admitted to the conflict of interest and to arranging the bidding in favor of Smith Mechanical for which he was paid both in cash and in kind. Joe’s employment was subsequently terminated; however, West Coast elected not to press charges. The conclusion of the investigation does not mean it’s the end of the story for West Coast. Now, they must turn their attention to developing a robust compliance program to help prevent these problems from arising in the future.
Guido van Drunen is a director and Kurt Williams is a manager within KPMG’s Forensic Practice. KPMG Forensic is a global practice with multidisciplinary professionals who assist clients in their efforts to achieve the highest levels of business integrity through the prevention, detection and investigation of fraud and misconduct. This practice not only helps clients discover the facts underlying concerns about fraud and misconduct but also assists clients in assessing their vulnerabilities to such activities and in developing controls and programs to address these risks. van Drunen can be reached by phone at 206.913.4208. Williams can be reached by phone at 206.913.4416.
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