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Energy Company Investigative Accounting Examination
Public Service Commission
USA

A US State Attorney's office brought criminal charges against a number of state energy company's employees alleged to have received from one or more contractors' monetary bribes or kickbacks. As part of the implementation of these kickback schemes, these employees are alleged to have arranged for the energy company to pay inflated claims to the participating contractor(s).

Challenge
The state's public service commission (Commission) issued an order to initiate a prudence investigation into these illegal or improper activities, into the extent, if any, by which such activities extend beyond those uncovered by the US Attorney, and into the adequacy of the energy company's related internal controls.

The Commission also sought quantification of the ratepayer burden, as a result of any illegal or improper actions taken by the energy company employees or by the energy company, and whether if and to what extent the energy company acted in an imprudent manner in its operations that resulted in these costs being incurred.

Solution
Helmes&Co undertook an examination that was conducted in two parts.

Examination: Part One
Part One of the examination focused on the fraudulent transactions described in the arrest affidavits and the known participating contractor. Specifically, Helmes&Co:

  • Performed a detailed examination of the fraudulent transactions described in the arrest affidavits
  • Interviewed relevant energy company employees
  • Met with federal law enforcement authorities to develop an understanding of the kickback and related fraudulent overcharging schemes used by the energy company employees and the participating contractor

Part One also included an assessment of the energy company's construction-related internal controls. This review involved a thorough examination of the processes, policies, and procedures related to the energy company's construction contract administration and contract management. Specifically, we reviewed the following activities:

  • Construction services procurement process
  • The energy company's construction management invoice review and payment approval process
  • Contract change processing and approval process

Based on this examination, a model was developed to determine the magnitude of the potential at-risk transactions for the contractor identified in the arrest affidavits.

Examination: Part Two
Part Two of the engagement expanded this examination beyond the contractor and contracts examined in Part One to determine if other contractors, contracts and transactions exhibited patterns or traits similar to those examined during Part One.

Value
Helmes&Co's findings, conclusions, and recommendations were delivered in two reports to the Commission.

Note: To ensure client confidentiality is maintained, certain project details have been sanitized.