The shareholders of the automobile factory Autocaroff turned attention to substantial growth of operating costs without corresponding changes in production volume and a comparable market disruption.
Furthermore, the Autocaroff factory in-house security, based on the comparison of photographical surveillance data with the entries in the transport log, detected that during the preceding six months the checkpoint employees had systematically ignored their duties to register any vehicles crossing the borders of the factory area. The majority stakeholder, Mr. Steelmaker, initiated independent investigation for detecting possible fraud schemes that could be a primary cause for deteriorating financial results.
Mr. Steelmaker defined the area for investigation within the limits of three factory floors: (1) welding department, (2) extrusion plant, and (3) frame shop.
The analysis of metal movement in the industrial process (including scrapping) in the above area for investigation made it possible to detect a number of gaps in the internal control system, each of them creating conditions for the production and subsequent sales of uncounted final products, as follows:
- lack of adequate control over safety of metal sheet, base metal and finished articles;;
- lack of any documents that would certify the number of articles transferred between the factory floors during the manufacturing cycle;
- lack of control over the labelling of vehicles;
- lack of check weighing of scrap metal when transferring to third parties with rights of self-delivery from the Autocaroff area;
lack of information of the rejected production in the reject statements.
The analytical tests detected excessive purchases of metal and, subsequently, the manufacturing of uncounted automobile parts through intentional manipulation by using applicability tables (i.e. catalogues of constituent part specifications for the entire range of produced cars). In particular, the lists of equipment for some vehicle models showed that sometimes the two car bodies were used rather than only one.
An unscheduled inspection of the storage sites in the factory floors brought to light that uncounted final products had been concealed during the operational period among the heaps of scrap metal and rejects. Furthermore, those products were removed from the factory area, together with scrap metal, by Thunderprisoner company with which the Autocaroff had concluded an agreement for the sales of metal scrap on the terms of self-delivery from the factory area.
The analysis of the affiliation of the Autocaroff employees with contractors showed that the daughter of the Autocaroff welding department head, Mr. Soldering, and the mother-in-law of the Autocaroff sales department head, Mr. Immortal, were co-founders of the Thunderprisoner company. In addition, the identification of assets (real estate items) registered in the name of said employees revealed distinct discrepancy between their income and expenses.
It is worth noting that the Autocaroff was the only contractor of the Thunderprisoner company. In other words, the main and single purpose of the Thunderprisoner company incorporation consisted in the implementation of the said scheme for manufacturing and withdrawing the uncounted final products from the Autocaroff area through manipulating with the catalogues of constituent part specifications for the produced cars.
As a consequence of the fraud revealed by investigators, the average volume of short-received proceeds in the Autocaroff company turned to be 17% over the last five years of the review period. Based on the findings of forensic diagnostics, a criminal charge against the counterparties, involved in the fraud scheme, was launched under the Article 159, part 4 of the Criminal Code of the Russian Federation. The criminal investigation will be continued…