Case Study

Investigation following allegations of fraud and mismanagement

Stroz Friedberg is a specialized risk management firm built to help clients solve the complex challenges prevalent in today’s digital, connected, and regulated business world

Investigation following allegations of fraud and mismanagement

A major state owned utility company in Africa that was experiencing serious financial difficulty amid allegations of fraud and mismanagement. The financial challenges stemmed from a number of historical and on-going operational and managerial issues. Due to the allegations, the company had little support from the government, the national energy regulator or the public for further funding to keep the company operating.

The company therefore engaged Stroz Friedberg – an independent third party with international expertise – to investigate these allegations, assess the reasons behind the financial challenges and provide a view on the accuracy and completeness of information being reported to them by the business.

Stroz Friedberg’s team conducted an in-depth review of the recent operational and financial performance of the company in order to identify potential wrongdoing, mismanagement and inefficiency. A team was quickly mobilised to work onsite at the company, interviewing key executives and interrogating their accounting system.

There were a number of areas targeted for examination: operating expenditure; capital expansion programmes; financial planning and management; cash flow and liquidity management; and, borrowing programmes and funding constraints. A tailored transactional testing program was developed by our Forensic Accounting practice, focusing on high risk financial transactions with distributors and suppliers as well as analysing payments in high risk expense accounts.

The team interviewed heads of businesses, leveraged local staffing in carrying out a large scale document review and undertook data analytic testing designed to identify possible evidence of fraud, conflicts of interest, asset misappropriation and wastage in the financial records. The results identified a number of suspect suppliers on which corporate intelligence searches and public record research were performed.

We found structural deficiencies in the commercial and finance functions including inadequate reporting procedures and poor data management which ultimately exposed areas of the business to mis-management and manipulation. We also found indications that individuals in positions of authority had been involved in, amongst other things, embezzlement and corrupt procurement practices.

Stroz Friedberg provided the client with various recommendations and actions. These included improving control weaknesses leading to wastage such as poor contract management and lack of oversight or challenge on major areas of spend. Our findings also supported the company’s decision to make high level management changes within the business.

Stroz Friedberg

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