Case Studies
Uncovering Fraud at Caribbean Banks
The Problem:
The finance minister of a Caribbean nation suspected that the failure of three major banking groups was the result of fraud.
The Kroll Solution:
Faced with a large and complex investigation, Kroll assembled and managed three teams of forensic accountants, investigators and a government audit staff. These teams conducted interviews with a large number of parties, including some suspected of wrongdoing. These teams also analyzed and managed documentation, determined a timeline of suspicious activities, traced and located hidden assets and helped quantify the scope of the fraudulent activities.
The Result:
Kroll discovered hidden assets in domestic and international locations, assembled evidence of fraud and corruption and worked closely with the police and justice officials from the Caribbean nation to help prepare charges against several former owners and managers of the banks.
Improving the Cash Flow of a Borrower
The Problem:
A group of companies that manufacture and sell perfumes recently launched a new line of products, refurbished shops and increased capacity at its factory. All of these steps adversely affected its cash position.
Kroll was hired by a clearing bank that requested a review of how the group’s cash had been utilized and how additional funding would be used.
The Kroll Solution:
Kroll highlighted a number of weaknesses in the group’s financial forecasts and recommended solutions. Kroll also suggested how the group could improve its Management Information Systems so that appropriate information would be readily available for decision-making purposes.
The Result:
The group was extended additional funding.
Testimony Forces Contractor to Admit Overcharges
The Problem:
A general contractor was hired by a wealthy individual to build a house for a fixed fee. After the house was built, the contractor sued the homeowner for additional compensation, alleging that the scope of the project had increased by over $1 million. The wealthy individual disagreed, but his foremost concern was that his business associates would question his integrity by refusing to pay.
The Kroll Solution:
On behalf of the homeowner, Kroll investigated the contractor’s allegations of significant cost increases. Kroll’s investigation included analysis of the contractor’s books and records, which revealed that charges billed to the client were, in many cases, actually incurred on other projects.
In other instances, charges prohibited under the General Contracting Agreement had been charged to the client. Kroll also found many examples of double and triple billing for the same expense.
The Result:
Kroll proved that the increased costs cited by the contractor were due to the contractor’s improper practices. After the testimony of our forensic accounting expert, which included oral testimony and graphics presentations, the contractor admitted liability, withdrew his claim, and both he and his attorneys offered public apologies. As a result, the client paid no damages, and most importantly, his integrity was vindicated.
Finding Financial Flaws in a Takeover Target
The Problem:
A company was interested in acquiring a transportation equipment manufacturer. The target company’s sales volume was projected to grow by 32% in the year following the acquisition based on the launch of new products late in the year. The acquiring company wanted Kroll to determine if those projections were realistic and assess its true financial position.
The Kroll Solution:
The sales projections hinged on thelaunch of new products late in the year following the acquisition. Kroll’s analysis of previous project launches determined that achieving significant sales volumes required a longer lead-time than budgeted. The adjusted projections identified 12%—not 32%—as a more realistic figure.
The Result:
The acquisition was completed but restructured to tie a portion of the purchase price to future performance. Both parties agreed that this was a fair approach.
Uncovering the Reason for a Rival’s Sudden Surge
The Problem:
A major multinational consumer-goods producer became concerned when one of its best-known products suddenly began to lose market share in Europe. What was the reason for the loss? A competitor had been able to sell its brand at a substantially lower price, eating into the producer’s market share and profits.
The Kroll Solution:
Kroll was asked to determine whether the competitor’s actions were legitimately supported by lower production costs or whether they reflected unfair market practices.
Kroll was also asked to explore legitimate avenues to determine the competitor’s methods of production and the implications of those methods on production costs.
Following a detailed review of patents and other public records, Kroll determined that the competitor had adapted a novel means of production developed by an Eastern European university.
This method was much more energy efficient than the traditional approach that had been in place for over 100 years. Further, the new approach allowed the substitution of cheaper raw materials with little apparent impact on product quality.
Relying primarily on interviews with people who worked in the industry, Kroll determined that the competitor company had licensed the new production techniques two years before and had been implementing the techniques at its various European production plants.
Kroll discovered that the licensing agreement that the competitor had entered into was not exclusive.
The Result:
Kroll suggested the client approach the university for a similar licensing arrangement.
The client was able to license the technology from the university and implemented it on a test basis in several European countries while repositioning its existing production method as a traditional premium offering.
As a result of Kroll’s competitive analysis, the client was able to recoup lost market share and expand its share for more efficient market segmentation.
Helping a Mexican Bank Clear Its Name
The Problem:
A large Mexican bank was informed that a local branch manager had been indicted in connection with an international money laundering sting operation initiated by U.S. Customs.
This resulted in the U.S. government freezing significant assets belonging to the bank. The operation, known as “Operation Casablanca,” attracted worldwide attention.
The Kroll Solution:
Kroll was hired by the bank to conduct an immediate investigation in Mexico, in cooperation with its US-based lawyers. The bank wanted its name cleared and its assets returned.
On behalf of the bank, Kroll investigated and determined that the information utilized by the government to indict the branch manager was flawed.
Kroll was able to develop numerous witnesses with knowledge directly contradicting the government’s assertions in the original indictment. Kroll had actually originally installed the bank’s anti-money laundering program and was able to show that the bank met and exceeded all required U.S. standards.
Witnesses and facts verified that the fugitive branch manager was not an employee of the bank at the time he had been recorded talking with the U.S. Customs undercover agents.
The Result:
Kroll provided witness testimony and affidavits to the U.S. District Court in Los Angeles, and the charges were dismissed. The bank was able to recover over $1.7 million, and it commended the work of its lawyers and Kroll in numerous publicly released statements to the news media and its depositors.
Designing a Fraud-Proof Construction Plan
The Problem:
A leading financial services company was undergoing a $140 million building renovation. The client initially hired Kroll to monitor the construction management process and determine weaknesses that could increase the likelihood of fraud.
The Kroll Solution:
Kroll reviewed and evaluated how the client’s management team was handling various aspects of the project, including the procurement process.
Kroll found significant flaws that substantially increased the likelihood of fraud. Based on the findings and recommendations, the client asked Kroll to monitor the project and review all bidding and awarding of subcontracts, monitor all vendor invoices and payments and review labor and materials usage.
The Result:
While monitoring the project, Kroll found $2.5 million in inflated invoices. Due to Kroll’s review and analysis of these requisitions, coupled with the thorough and detailed report submitted to the client identifying these irregularities, the client was able to recover the full amount of the inflated costs.
Implementing a Regulation-Compliance Plan
The Problem:
A healthcare provider wanted to ensure that it had an effective program to prevent and detect internal violations of regulations or laws.
The Kroll Solution:
Kroll was asked to work with the provider’s law firm to conduct a compliance audit of the provider.
Kroll conducted a complete study and testing of the provider’s care delivery, clinical information, billing and coding systems. Kroll then identified critical points of risk for violations. Kroll worked with counsel and the provider to select controls that would mitigate those risks and that were appropriate to the unique culture and circumstances of the provider.
The Result:
Kroll’s work helped the provider by developing a unique and practical solution to address risks and an effective program to prevent and detect violations.
Compliance and Monitoring
Monitoring Change in the LA Police Department
The Problem:
The U.S. Department of Justice had brought a lawsuit against the City of Los Angeles, charging an illegal pattern of practice by the Los Angeles Police Department.
The Kroll Solution:
Kroll was awarded the contract for monitoring the implementation of over 170 reforms mandated by a consent decree entered into by the Department of Justice and the City of Los Angeles. Kroll won the contract following a selection process that included 18 other contenders.
As of June 2001, Kroll monitors and consults on wide-ranging aspects and practices of the LAPD, including:
- The implementation of a new computerized risk management system
- Data collection regarding motorist and pedestrian stops
- Analysis of data collected, supervision and training
- Gang intervention strategies
- Programs for dealing with the mentally impaired
- Confidential informant management
- Disciplinary systems
- Internal affairs investigations
- Use of force investigations
- Search and arrest procedures
- Performance evaluations
Kroll reports quarterly to the federal judge overseeing the consent decree and holds monthly meetings with both the Department of Justice and the City of Los Angeles to provide ongoing communication relative to issues surrounding the consent decree. Kroll also provides outreach to the community through political and organizational representatives, in order to educate the public about the role of the Independent Monitor.
The Result:
The monitoring and consulting are oriented toward improving the processes used by the police department, and will last a minimum of five years.
Screening Vendors in Construction Projects
The Problem:
A global financial services organization was planning several large construction projects. They needed to insure that the vendors they used for these major endeavors could finish the work on time, handle the scope of the project and were free of reputation issues that would reflect badly on the company.
The Kroll Solution:
Kroll was hired to verify the integrity of vendors and ensure their dependability. Kroll performed a database screening of each vendor that revealed legal business and financial information.
The Result:
Kroll discovered that between 2% and 8% of the vendors had previously been charged with criminal activity or associations. Up to 30% failed to disclose litigation such as contract fraud or failure to meet obligations. Between 5% and 9% failed to disclose such related matters as debarment of federal contracting, bankruptcies and changes in business ownership.
