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Impropriety by GM – Colombian Subsidiary of Healthcare Provider

The Fraud:

A European-owned multinational with offices worldwide.  The General Manager had founded the business himself and had sold out to the multinational.  He was the key contact with the clients, many of which were government institutions

The fraud operated for several years and was discovered only when the business, through reasons unconnected with the fraud, became unprofitable for the first time.  A fall in the credit rating prompted a detailed review by external auditors and the installation of a new CFO.  At the same time, the General Manager checked into a rehabilitation clinic in the US.

The impropriety had run for three years, ever since the acquisition of the business. It involved:

  • Diversion of payments from customers to a secret bank account.  This was in the company’s name but the General Manager was the sole signatory and the funds were not recognised in the financial records.  Some were channelled into the subsidiary’s legitimate accounts, some were for the General Manager’s improper financial gain, and some were paid back out to officials within the major clients.
  • Acquisition of real estate in his own name using company funds.
  • Arranging payments for his own benefit without authorisation – loans, bonuses, commissions, salary increases and the like.

When confronted, the General Manager maintained his innocence.  He said the secret bank account had been set-up and used to fund payments which secured extremely profitable contracts for the subsidiary.  An official corruption enquiry suggested this was true.  The other schemes did though comprise straightforward fraud for his own financial gain.

The General Manager had in effect continued to run his business as he had before selling-out to the multinational – kick-backs to customers, payments for own benefit, self-authorised remuneration.

Risk Features:

  • No introduction of new management when the subsidiary was acquired.
  • Scope of due diligence pre- and post-acquisition.
  • Until the business slump unconnected with the fraud, the subsidiary had been extremely profitable.
  • The nature of the Colombian business was sufficiently different to operations in other parts of the world for there to be no direct comparisons for profit margins and costs.
  • Regional managers had responsibility for monitoring contractual dealings and expenditure, but all reviews and questions were routed though the General Manager.
  • A domineering and charismatic personality.  Not questioned by subordinates, and easily able to fend off questions from head office and regional management.
  • Much of the proceeds funded a lavish lifestyle, with proceeds dissipated overseas, primarily the US.
  • Quarterly external audits carried out under US GAAP.
  • Difficulties in holding the bank or external auditors liable – notwithstanding significant failings on the part of both.


  • Effective due diligence pre- and post-acquisition, targeting not just the financials but the nature of the business and customer relationships / contracts.
  • Introduction of new management when a subsidiary is acquired.
  • Awareness of cultural differences in emerging markets.
  • Effective internal audit function and head office financial review.


May 2021
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