The Fraud Examiner

The Managing Director Has a Secret
 

Catching a Fraud In Northern UK


By Patrick Wellens, CFE, CIA, CRMA, with Shaun McMillan

October 2014

 

Donovan, 48, from Scotland, was happily married with two children. He was tall and good looking, an extrovert whose outgoing personality helped him to do very well professionally. As a scientist, he built a successful research company that he sold for close to USD 70 million to a large pharmaceutical company that I’ll refer to by the pseudonym “Pharmatops.” 


Pharmatops asked Donovan to stay on and run the new subsidiary in the Northern UK. The subsidiary consisted of about 40 people, nearly all scientists and a few administrative staff.  


One autumn day, while working as an internal audit manager for Pharmatops, I was asked to see one of the board members, who explained to me that allegations of misconduct had been reported anonymously at the Northern UK subsidiary. The board wanted me to find out whether these statements were true. 


The managing director (Donovan) was contacted and informed that his subsidiary was on the audit plan this year and that a high-level review of operations (sales, procurement, research and development, accounting) would be conducted. Donovan told me that the subsidiary was very small in size, and given that just three years ago it was acquired by Pharmatops, an audit was not really necessary. He stated that surely there are larger and more riskier operations within Pharmatops to review. Also, during the time I wanted to carry out the audit, not all management staff would be around – so Donovan asked to postpone it. He must have known it was highly likely some of his fraud schemes would be discovered in the course of an audit.



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