10 points about real life bribery and fraud

Wednesday, April 9th, 2014


10 points about real life bribery and fraud

We have a continuing research project into Bribery & Fraud, specifically when the circumstances involve procurement and other staff with a supplier(s).

This research has led us to a report on “Investigation into bribery and fraud at RailCorp (Australian report by ICAC – First Report). Chapter 6 of the Report sets out the findings of fact and corrupt conduct. Some highlights are shown below.

  1. The report principally concerns the corrupt conduct of Mr Allan Michael Blackstock a RailCorp employee responsible for allocating welding work and Mr Youssef Madrajat the director of Precision Wirefeed Welding Pty Ltd (Precision).
  2. Mr Blackstock had allocated almost all welding work in his region since January 2004 to Precision.
  3. Mr Blackstock awarded the work to Precision, knowing that in doing so he would benefit financially through receipt of payments from Precision. Those payments, which were organised and paid by Mr Madrajat, totalled in excess of $1.3 million. Both were involved in submitting false invoices.
  4. When Mr Blackstock gave evidence he was evasive. Initially, he denied all allegations put to him, but changed his evidence when he realised that the commission had significant evidence against him. He cannot be regarded as a witness of truth.
  5. Inclusion of Precision on the list of established welders was one of the first critical steps undertaken by Mr Blackstock to organise work for Precision. At that time, the company had been newly created, had no work history and no employees.
  6. Mr Madrajat and Mr Blackstock colluded to produce at least six false invoices and claimed for work never performed by Precision.
  7. Mr Blackstock was aware proper safety tests were not being done, did not insist that they should occur, and did not report it to anyone in RailCorp. This is another indication of the adverse effect on his duties caused by Mr Blackstock’s considerable conflict of interest in relation to his management of Precision.
  8. During the subject period, RailCorp paid $4,288,521 to Precision for services claimed to have been provided. Out of this sum Precision paid its employees and the costs of running the business, such as maintenance of equipment, rental of premises and the purchase of consumables. This accounted for less than half the money paid to Precision. Mr Blackstock and Mr Madrajat were the principal beneficiaries of the rest.
  9. One direct outcome of the conduct over several years by Mr Blackstock was that his financial wealth increased substantially.
  10. During the period he was receiving substantial amounts of cash, Mr Blackstock significantly increased his discretionary expenditure on his lifestyle. His gambling alone demonstrated that he was able and willing to lose a lot of cash as he knew more would be forthcoming. His purchase of the investment property and the holiday unit indicate that he did not consider there was any realistic prospect of RailCorp finding out about his receipt of secret commission s and bringing it to an end.

10 points about real life bribery and fraud: Brian Farrington Limited comments on the above

These comments are presented in the same numbering sequence as above. The comments we make are intended to alert other organisations to the risk of bribery and fraud taking place within their procurement and contract award processes.

  1. The report is factual and very informative.
  2. This raises a strategic question regarding the vast majority of work being placed with one supplier. It emphasises the need for internal audit to conduct regular reviews of such decisions.
  3. This focusses attention on closed loop situations where one individual or department can award work, confirm receipt and appropriate quality, and sign-off invoices.
  4. This emphasises the need to gather irrefutable evidence prior to facing employees with allegations of wrong doing. Obviously, if criminal proceedings are to take place there are investigations and evidence gathering processes to be complied with.
  5. This is a massive consideration! How do suppliers get on an authorised list? Who keeps appropriate records of pre-qualification information and its robustness?
  6. This emphasises an internal weakness in invoice payment authorisation processes.
  7. The quality of Health & Safety tests and management is a very serious issue, leaving organisations and individuals potentially open to prosecution.
  8. This emphasises the need to understand the cost drivers and profit. It raises the obvious question regarding the availability of such information in organisations.
  9. Who examines the life style of buyers in your organisation?
  10. Note the comment on gambling and investments in property. It raises the issue of whistleblowing and the confidence people have in reporting situations where they have serious doubts about current practices in their organisation.

Professional colleagues should review their practices and ask a simple question –

“Could this happen in our organisation?”


Steve Ashcroft, your first point of contact for advice and support on how to enhance procurement practices, can be reached on 01744 20698 or email

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