FRAUD FINDINGS BY INTERNAL AUDITOR RELATED TO HUMAN RESOURCE DEPARTMENT

An oil company hired an oil field technician as a Preservation Manager – Worldwide (PMW) through a job agency (Agency 1).  The oil industry usually relies on job agencies to provide skilled contractors to work on large projects in isolated and/or remote destinations.  Sometimes a contract worker is hired through a chain of agencies, causing the employer to be at one end of the chain and the contract worker at the other.  Agency 1 was well-known for providing employees and labor contractors who could work in the oil and gas industry, and the PMW was well qualified for the position.

Once hired, he asked for four additional staff.  These four staff members were known to the PMW through another job agency (Agency 2).  They were hired on his recommendation and their contracts were routed through Agency 1, same as the PMW.  They were hired without the normal background checks because they were known to the PMW.

The team did maintenance work at the sites and was tasked with continuous performance of maintenance activities.  They worked long hours, traveling throughout Europe and Asia, as evidenced by time sheets approved by the PMW.  The excessive number of hours charged on paper triggered a review by the internal auditors of Agency 2.

During the review, the internal auditors found the HR files did not include appropriate identification documents of the four additional staff.  When they requested passport copies for identification, all four resigned.  Soon thereafter, the PMW quit as well.

A full-scale investigation by the oil company revealed three out of the four additional hires did not exist.  The PMW had created fake resumes and forged signatures on contracts, timesheets, and resignation letters.  The fourth was related to the PMW and had worked with him to compensate for the three phantom employees.

This resulted in more than $1.2 million in payments over a year and a half.  The oil company subsequently discovered that the PMW also operated under a false identity, he was untraceable, and the stolen money was unrecoverable.

Flaws in the system revealed no segregation of duties between the hiring and timesheet approval processes.  Human Resources did not follow a rigid hiring process and was not systematic in collecting and storing identification documents.  Each ghost employee was paid through the chain of job agencies and directly into bank accounts registered and managed by the PMW.

 This resulted in more than $1.2 million in payments over a year and a half.  The oil company subsequently discovered that the PMW also operated under a false identity, he was untraceable, and the stolen money was unrecoverable.

 What should Employers do?

·         Budget time in detail (monthly, weekly, daily) for every job.

·         Have a strict hiring process in place. Check IDs against the physical person.

·         Segregate duties between the hiring process and timesheet approval process.

·         Avoid using a long chain of job agencies.

What should Internal Auditors do?

·         Perform a periodic review of identification documents against effective employee presence (in the office or on site).

·         Ensure appropriate and complete identification documents are retained by the auditee’s HR department.

·         Establish key performance indicators or other metrics for each department and compare to total hours claimed.

·         Generally, have a strong internal control environment.