The Fraud Examiner

Mary Breslin, CFE, CIA, shares a case study involving an oil rig, a complex cover-up and a deadly kickback scheme.

By Mary Breslin, CFE, CIA

August 2015

When we talk about kickback schemes, people tend to envision the movie portrayal of two shady characters in a dark alley sporting fedoras and trench coats passing payments while glancing over their shoulders. While that may have actually been the case somewhere at some point, fraudsters today are much more sophisticated and kickback schemes can lead to serious — and sometimes dire — consequences.

Many fraudsters rationalize kickback schemes by believing the company somehow owes them and no one is getting hurt. But that isn’t always the case. The metaphorical “hurt” associated with stealing aside, sometimes people get physically hurt — and in the case I am about to recount, the injury was fatal.

Quality assurance is an important function in most manufacturing companies, and in an industry as inherently dangerous as the mining industry, it is critical. In mining, tremendous time, effort and money are spent preventing accidents, as well as trying to understand what caused any accidents that do occur. Mining companies have complex, detailed safety programs and root cause analysis, all in an effort to protect their employees from accidents.

It is horrifying when a fatality occurs. It is even more horrifying to find out the fatality occurred because of an inferior product. But to find out that the inferior product responsible for a fatality was caused by a kickback scheme is unthinkable. Unfortunately, that is exactly what happened in this case.

A drill rig contains a large drill that creates the hole in the ground and also a mast — a support structure that provides stability and holds the drill in place. Frequently, these masts are made from solid pieces of steel to ensure there are no weak points in the structure. A mast endures tremendous pressure during the drilling process, and if it isn’t strong enough to withstand the pressure, it can snap.

A company I consulted for manufactured drill rigs, but in some cases the fabrication of the mast was outsourced to other companies who were believed to be better suited for the work — experts in steel…or so they thought. The product specifications were very detailed but at the same time simple. The four main poles of the mast must be solid steel. To ensure they met with contracted specifications, the company had its own in-house quality assurance technicians perform quality testing on every mast received from our suppliers.

Solid pieces of steel shouldn’t snap from routine drilling, but one day a drill mast did snap, and the individual manning the drill rig was hit by the mast and fatally wounded. As a company, they had seen their share of accidents, and they took every single one seriously. A thorough root cause analysis was performed, and what was found shocked everyone. The mast had snapped at a welding point. Wait, what? There weren’t supposed to be any welding points, so how could the mast snap at one?

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