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Companies typically have thousands of vendors and all of them are trying to figure out a strategy to sell your company more and more of their goods or services. Often times, and especially common in many facets of the energy industry, a vendor starts to push the envelope in terms of gifts and entertainment, bid rigging, or vendor kickbacks that are the result of that vendor exploiting a relationship with someone at your company to obtain an unfair advantage over other vendors. Of course, even though we all hope that we don’t have employees that are looking for ways to obtain “extras” from vendors in exchange for directing work their way, employees can also be guilty of exploiting the vendor relationship. Unfortunately, in either case, few companies have robust processes and internal controls to detect and prevent such activities, which are mostly “off the books”.

Companies usually become aware of company personnel and vendors that are engaged in inappropriate relationships through a fraud hotline or employee tip. Other times, the company’s internal audit department may identify a potential issue through inquiries with personnel during routine operations or financial internal audits. In either case, the company must expend time and resources to properly investigate such allegations. Many companies have some of the skill sets in house to address the allegation, but many times, they don’t have dedicated resources that can drop everything to fully investigate and remediate. Depending on how the allegation was reported, a company can have very little information to start with and when it involves a vendor and transactions that are potentially on the vendor’s books and not your company books, it can feel like searching for a needle in a haystack.

Our firm is experienced in helping companies to detect, investigate and remediate situations like these. We call it Guardian services, and we combine the skill sets of some of our most seasoned fraud and digital forensics professionals and our internal controls and process specialists to assist clients with a fully integrated solution.

In the case of an allegation involving a vendor, we combine our investigative and internal controls resources and launch an investigation and vendor audit simultaneously. Our investigators and internal auditors work together to gather information, conduct an audit of the vendor, and gain an understanding of the vendor’s culture, to help determine if the allegations have merit. Vendors will almost always cooperate, regardless of contractual obligations to do so, because they want to retain your business and do not want to give the impression that they are uncooperative. We have found that sometimes vendors are unaware of the activities of a particular salesman or sales team, especially when the allegations involve a satellite or location other than corporate.

One of the key aspects of our approach is that we obtain the evidence to support the allegation, whether it comes from our digital forensic analysis, data analysis using a tool such as IDEA, or from the vendor’s credit card statements, bank accounts and expense reports. Obtaining this evidence is key and provides our clients with the ability to make informed decisions about their employees involved in the scheme and their continued relationships with the vendors. Often, we will discover that these are major vendors for a company and we want our clients to know who was involved and how much the vendor knew about the activities that were occurring. As a result of the vendor audits, we will also identify inaccurate billings, overcharges and pricing errors that our clients can recover from the vendors. These recoveries can often offset the charges spent to investigate the allegations.

Through our investigation and audit procedures, we work to detect the root cause (i.e., internal control gaps and breakdowns) that allowed the scheme to occur. We then assist in the design of new procedures and controls to prevent future incidents. We often work collaboratively with resources from our client to ensure the new controls and procedures align with the company’s existing control structure and will be monitored by the appropriate internal teams (i.e. Internal Audit).

Responding to an allegation is never a happy time for our clients, but being able to help them find the root cause of the problem, identify the perpetrators, and to help them prevent it from happening again is a rewarding experience.

For more information regarding this topic, please contact your local UHY LLP professional or the author of this article, Dawn Williford.