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The increased incidence of fraud – and how to detect, minimise and prevent it – has been the focus of extensive recent discussion in the maritime sector. Cyber-crime has dominated much of the debate, but ship managers should be aware that the problem of fraud is not limited to crimes perpetrated by criminals from outside their organisation gaining access to their systems.
Although securing protection against ransomware and other cyber-threats is of vital importance, this should not blind ship managers to the possibility of frauds perpetrated by individuals within their own organisations.
ITIC has seen a wide variety of frauds, all of which have one thing in common – they involve criminals seeking to extort money. A common feature is for the criminals to arrange for their victims to pay more than they need to, and then keep the difference for themselves.
A simple example was a fraud run for a number of years by an executive in a ship manager’s purchasing department. He arranged for goods to be supplied by ‘his contacts’. In fact, the invoices came from a company he had created, and were for slightly inflated prices. He ordered the goods from genuine suppliers, and the suppliers invoiced the address they were given in the correct amount. He then paid them out of the money he had received and pocketed the difference.
Repeated small frauds of this type often add up to significant sums over time and can be difficult to spot. Often it is an unexpected event (in this case a dispute over a defect in the goods supplied) that brings the fraud to light. When the fraudster is exposed, other staff members invariably say that the individual was unusually sensitive about any queries in connection with ‘his business’, always insisting that he would sort them out himself.
Another fraud seen by ITIC involved an unexpected staff absence leading to the discovery of a fleet manager who was engaged in ‘ghost payrolling’. This employee created a fictitious officer whom he ‘deployed’ on various ships in the managed fleet. The payroll had been outsourced to an external company, and the fleet manager insisted that only he would sign off the crew payrolls – something which, on reflection, the shipmanagement company admitted was strange for someone of his seniority. It did however enable him to arrange payments to the fictitious officer without scrutiny. By deploying ‘his officer’ across the fleet, the additional costs fell on different owners. Once the fraud was uncovered it was realised that, for a short period, ‘his officer’ had supposedly been ‘working’ on two ships in the managed fleet.
Elsewhere, crew payments in cash proved too tempting for an employee of a ship manager in the Far East. An investigation prompted by the discovery of large discrepancies in one of the managed fleet’s accounts revealed that one of the crewing team had a very simple scam going on involving the issuing of inflated fund requests for final salaries of seafarers signing off from ships. The fund requests were presented to the accounting team, who issued the salaries in cash.
The crewing executive put the correct amount of cash into sealed envelopes for visiting superintendent to pass to the Master of the ship and kept the balance created by the inflated fund request. The superintendent brought back the acknowledgement receipts from the seafarers, whereupon the member ofthe crewing team recorded the crew as having received the higher amounts and disposed of the actual receipts. Over time, $900,000 had been stolen.
A lesson drawn from these accounting frauds is to be careful to avoid an individual having the ability to control every aspect of a transaction with minimal scrutiny. It may be worth ship managers having a review of the systems and controls in their business to minimise the risk of fraud.