Poor Internal Controls Over Vendor Management Results in $530 Thousand Fraudulent Payment

Fowler General Construction holds a contract to build a new "Collaboration Center" at PNNL's (Pacific Northwest National Laboratory's) campus in Richland, WA. Taxpayers spend about $1 billion per year to Battelle Memorial Institute to operate the Lab for the Department of Energy.

In November 2016, PNNL received an email instructing the company to change the bank account for electronic payments made to Fowler for work performed. PNNL complied and issued a payment of $530 thousand to the new bank account on December 16, 2016.

In January 2017, Fowler called PNNL to ask the status of their payment stating they hadn't received the December payment. A subsequent investigation showed that the new bank account was not associated with Fowler and the account had been emptied shortly after payment had been made.

Whoops.

PNNL assigned Aleta Busselman, the Lab's enforcement coordinator, to investigate and prepare a root cause analysis report. Her job was to analyze PNNL's response to the bank account change request. DOE's (Energy) Inspector General and the Justice Department were performing their own investigation to determine how the  information to make the change was obtained by the thief.

Ms. Busselman's "audit" pointed to PNNL management and their failure to institute effective internal controls in its vendor program. PNNL management didn't like that result, fearing that it would make management and PNNL "look bad". For a few days she and management argued over what should be reported. Then, Ms. Busselman left for a scheduled vacation but when she returned, she didn't have a job. She also found that her report had been gutted of any mention of management responsibility.

Ms. Busselman is now accusing PNNL of retaliation and is suing to get her job back.

How effective would your internal controls be in preventing this kind of fraud?

The source for this post is an article appearing in  the June 21, 2017 edition of the Tri-City Herald.