A recent article in Fraud Magazine, “Mayflower moved millions out of the government’s pocket” by Robert Blair, highlights the importance of continuous auditing and integrated systems. In this case, a team of auditors were tasked with auditing payments made on behalf of the U.S. Department of Defense (“DOD”). The Defense Finance and Accounting Service (“DFAS”), the organization who provides payment services for the DOD, makes over $1 billion dollars of payments on behalf of the DOD daily.
Mayflower is a moving company which has been around since 1927. It is one of America’s largest and well-known moving companies. Mayflower provided DOD with moving services for military members’ household goods. In billing for its services, Mayflower took advantage of a flaw in the DOD’s payment system. In the 1990’s, the DFAS had independent programs that did not reconcile with each other. For instance, if a vendor sent an invoice via regular U.S. Mail, the DFAS would pay it. If that same vendor submitted the exact same invoice electronically, the DFAS would pay it. Furthermore, if the same vendor sent a reminder invoice to another office, that office would pay it. None of the offices would communicate with each other. Mayflower recognized this weakness in the DOD’s system and used it to its advantage by submitting the same invoice for payment through multiple DFAS channels.
The audit team discovered Mayflower’s scheme by using data mining, a preferred method when dealing with large volumes of data. In data mining, auditors and fraud examiners use various software tools look for abnormalities in the data. In Mayflower’s case, the auditors noticed multiple payments in the same amount within the same month being paid to Mayflower, which triggered further investigation and unraveled the scheme. The DOD brought legal action against Mayflower and Mayflower had to repay the DOD millions of dollars, pay a large fine and were not allowed to bid on any new government project for a year.
To learn more about data mining go here.