Investigation

September 10, 2016

Usually, corporate investigations are the consequence of some sort of wrongdoing that results in the organisation having to recovery from an undesirable loss or impact such as fraud, reputational damage or regulatory non-compliance. However, sometimes there can be a positive outcome.

The following account describes a recent investigation that Centium was asked to undertake where we were able to assist management to recover from a situation caused by staff over-enthusiastically negotiating an unfavourable arrangement with a third party that could potentially cost the organisation a considerable amount of money. Our investigation helped them reduce the impact of the loss. Here is the story……

Situation

In June 2016, Senior Management from a NSW Government Agency contacted us about concerns they had with the process adopted by Agency staff to negotiate a lease agreement with a third party for a commercial property owned by the Agency.

Staff, acting in good faith but motivated by a desire to achieve the best lease rate possible, incorporated an incentive clause in the contract outside of prescribed procedures. This entitled the third party to a large percentage bonus of the first years rent for any amount over and above the estimated rental value of the property.

The third party was able to lease the property for significantly more than the estimated rental value and netted a bonus payment almost 6 times more than the fee they would normally have been paid.

Task

Centium was asked by the Agency to investigate the circumstances that led to staff negotiating this risk and reward incentive clause. Agency management felt that there were a number of irregular aspects to the process, especially that the Agency’s Executive were not advised of the outcome until they raise a query about a request for a budget amendment, sometime after the lease had been concluded.

 Action

We undertook a comprehensive investigation of the matter by interviewing staff who were a party to the negotiations and reviewing the process adopted, compared with prescribed policy and procedures. We also performed some background checks on the parties to the leasing arrangement and during the course of our enquiries, we identified some information about potential conflicts of interest that the Agency might be able to leverage to reduce the bonus payable to the third party.

 Result

As a direct result of the investigation, the Agency was able to renegotiate the fee, resulting in a saving of $400K. The investigation also provided sufficient detail to enable Agency Management to take appropriate action against staff who negotiated the agreement in violation of a number of Agency policies.

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