On a Friday afternoon, very early in the investigation, MSTs CFO told us that management wanted Leslie questioned the first thing on Monday morning. Though we asked for more time to develop evidence, the message was clear: Interview him now! During a detailed over-the-weekend inspection of Leslies office, we recovered what later proved to be some incriminating data from his computer. We also visited his neighbourhood and discovered his newly ostentatious lifestyle. But we had yet to find the smoking gun. 6 On Monday we interviewed him. We didnt want to show all our hand, so we picked our discussion points carefully. Leslie acknowledged a dozen separate instances totalling over $40,000 in which MST reimbursed him twice for identical travel and other expenses, but he claimed the payments were an inadvertent oversight and blamed his administrative assistant for the mistakes. Leslie also characterized $36,000 of duplicate invoices from Alpha Partners as a problem and agreed that it was hard to imagine they were submitted in error. He said his approval was another oversight but rationalized that he signed numerous invoices and could not be held accountable for the accuracy of each one. After unsuccessfully trying to position himself as the victim, Leslies attitude took a noticeable turn. With steely eyes and a defiant demeanour, he began answering questions with questions and claimed ignorance of even basic facts regarding the vendors he used in his department. Leslie tried to turn the interview into a fishing expeditionhe clearly wanted to know what else we knew. But it was apparent that he was not going to provide us with any more information. We ended the interview and escorted him to the CFOs office, where he was suspended pending the outcome of the investigation. Three months later he would be terminated for cause. MST blocked payment on STARs and Alpha Partners invoices. Not a peep was heard from STAR, but within just a few days Phillip Jones, the chief executive officer (CEO) of Alpha, threatened to sue MST over $85,000 in unpaid bills. Jones reluctantly agreed to meet with us and answer all of our questions. But he arrived with an attorney, and the meeting was brief. Jones fumed about the financial chaos his company would suffer if he was not paid quickly. His attorney threatened that, unless MST immediately disbursed all Alpha invoices, he would make sure the world knew MST was unfairly preying on one of the fastest-growing consulting firms in California. 7 During the discussion, Jones acknowledged the questionable invoices that clearly appeared to be double billings but blamed Alphas accounting system for the mistake. Oddly, he also turned over several additional invoices that MST had paid, which we were unaware of, representing another $16,000 in duplicate billings that Leslie had approved. We later came to believe this disclosure by Jones and the demands by his attorney for immediate payments were intended to distract attention from other Alpha billing improprieties we had not yet discovered. MST didnt take the bait and we continued our investigation, identifying what appeared to be fictitious invoices from fabricated companies, more apparent overbillings from real entities (mostly Alpha Partners), and questionable deals from subcontractors to Alpha on MST projects. Within a month we also knew who owned the Ferrari (Phillip Jones) and the ski boat (Ron Harris) just before Leslie did. We also traced the tail number of the airplane in the photo on Leslies desk and discovered it was registered to STAR at Rons home address, which just happened to be Leslies former address. Leslie threatened to sue when he was terminated but ultimately said hed settle for a generous separation package and a good reference. MST said no. Any prospects for his cooperation ended there. Harris disappeared. Joness demands for immediate payment waned when we discovered he had sold the Ferrari to Leslie for $35,000 but couldnt produce evidence that Leslie ever paid for it. Jones ultimately agreed to arbitration. But his attorney resigned after determining that his client had lied about the validity of the invoices. In the end, Jones didnt receive a dime. 8 We discovered documents that linked Peter Johnson, who had hired Leslie, to two suspicious payments from STAR totalling $47,000, just before he retired from MST. I contacted Johnson about it, but he had clearly gotten wind of how things were going with Leslie and Jones. The once-cordial, grandfatherly-type figure abruptly referred me to a criminal defence attorney, who advised that Mr. Johnson will have nothing to say without first receiving full immunity from prosecution. And this was before we even had our first discussion with a law enforcement agency! In the meantime, we looked at Leslies dealings in Hong Kong. We found the request for proposal Leslie had used to solicit bids for the Hong Kong network we sent it to a few IT consultants, both in the United States and Hong Kong, to get their estimates for the work. Their bids were consistently tens of thousands of dollars less than the amount MST actually had paid. In addition, each person we interviewed couldnt imagine why Leslie needed several Alpha Partners consultants to make numerous trips to Hong Kong; they said the project wasnt that big or complicated. In Hong Kong, we discovered that Leslie awarded the work to the smallest vendor that bid on the project. We found the original bid had been for less than $100,000, but it was later inflated, and MST was actually invoiced for more than $140,000. The local vendor, Mr. Tan, told us Leslie had insisted he raise his bid if he wanted the work. Leslie had MST process Tans invoices quite expeditiously, and he was paid in full well before his work was complete. He knew Leslie wanted money from him and understood why he was being paid so quickly. In fact, Mr. Tan stated that, just prior to one of Leslies last trips to Hong Kong, Leslie told him he would be expecting $40,000 in an envelope the next time the two met. 9 Tan believed Leslie needed the money to cover his extravagant living expenses in Hong Kong, which, Tan said, included helicopter tours of the area, lavish meals, gambling trips to Macau, and an escort service. We presented these facts to the Independent Commission Against Corruption (ICAC) in Hong Kong. The ICAC raided Tans offices, confirmed our findings, and obtained further incriminating evidence. Tan and his partner were arrested and quickly convicted. They would later flee to the United Kingdom and disappear. Leslie was convicted in absentia for his part in the scheme, and a warrant was issued for his arrest the next time he entered the country. Back in the United States, our quest for prosecution was not so successful. We debated whom to present the case to firstthe local police, county prosecutor, U.S. Attorney, FBI, postal inspectors, or the Internal Revenue Service because Leslie had received unreported income. MSTs counsel insisted that we start with the local police, who declined, citing lack of jurisdiction. Strike one. We spoke with the county prosecutor, who directed us to present our evidence to his chief investigator. The prosecutors office declined to pursue the case. Strike two. We then presented the case to the FBI, but it was apparently not compelling enough. Strike three. The FBIs response was a real letdown, and MST decided to put the investigation on hold indefinitely. Unfortunately, in many large jurisdictions, reasonably good corporate frauds are passed over in favour of very good, very large fraud cases. In the eyes of the FBI, our case required too much legwork and simply didnt make the cut. The game was over. As for Leslie, I dont know whether he ever had a reason to go back to Hong Kong, nor do I know how long that warrant will remain. Weve never heard anything from the ICAC indicating they had arrested him. In the end, Leslie dodged a bullet. As far as I know, hes still in the private sector and still poses a significant risk to the unsuspecting but well-intentioned people he may.

3 Describe the investigative techniques used by the team from the loss prevention department to uncover the fraud? Identify any deficiencies in the process that could have led to the absence of a conviction. (10 marks)

4 Explain the lessons learned by the organization in this case. Outline the recommendations to prevent a future occurrence. (10 mar