Vibato Anti-Fraud News: Why it pays for Auditors to know High-End Brands

Posted by Teresa Bockwoldt on Mon, Jan 09, 2017 @ 12:25 PM

Audit Risk

It pays for an Auditor to know high-end brands because it is EXTREMELY difficult for people to hide their new-found wealth and typically the first way they show it is through their cars, jewelry, watches, bags, etc. It is human nature to brag and that starts with how you look, the brands you wear, and the car you drive. Case in point - we were once hired to investigate a company that couldn't figure out how they were "leaking so much money” considering they had only 7 employees. So, the first thing I asked for was a list of everyone's salaries and I inquired about each person’s background. Here is what I found:

7 EMPLOYEES*

  • Everyone made <$75K
  • Everyone had been at the company for >8 years
  • All employees had at least 1 child and one employee had 5 children
  • All employees had owned a home in California for >10 years
    • This is an important point since this meant that they had purchased their home prior to the dot-com boom and when home were more affordable. Considering this was in the Silicon Valley, no one with a $75K per year salary would have been able to afford a house when this audit occurred.

Then I took a tour of the parking garage…

CARS

  • 5 employees drove cars valued at <$12K and 1 Employee rode a motorcycle valued at $7K
  • 1 Employee drove a Porsche 911 convertible that was <3 years old

Then I walked around…

JEWELRY & ACCESSORIES

  • 6 employees had mid-priced or standard shoes and handbags
  • 6 employees wore watches and jewelry that were in-line with how much they made (so no 5 carat diamonds or anything)
  • 1 employee had a Louis Vuitton briefcase, wore Allen Edmond shoes, and wore a vintage Rolex Chronograph watch

Then I inquired further…

Vibato Question, “Does the person with the Porsche & 5 kids come from money?”

Client answer, “No”

Vibato Question, “Did they get a settlement or some influx of unexpected money that you are aware?”

Client answer, “No, not that they have shared.”

Vibato Question, “It seems strange that a person with 5 children living in California could afford to drive a Porsche 911 convertible, wear a >$18K watch, $300 shoes, and carry a >$4K bag.”

Client answer, “Oh dear… [the persons] kids are also in private school…

Further investigations were held and it was determined that the person with the Porsche was committing fraud and had been for many, many years. So, the lesson learned is to keep an eye on your employees. The fraud issue from this story was solved in less than 1 day but it is often difficult for people to see the potential crooked side of someone that they have known and liked for so many years. In this and many other cases, the person committing the fraud was screaming about their crimes, but just not with their voice.

 

*NOTE: Some details were changed to protect the confidentiality of the client.

Tags: fraud prevention, White Collar Fraud, fraud, Vibato Anti-Fraud News, How to prevent Fraud