VENDOR FRAUD

TAXI VENDOR FRAUD


BUSINESS PARAMETERS

1. Generally the companies follow the following business process / Standard Operating Procedures with regard to hiring of taxis for company executives :-

(a) Vendor development shall be a routine activity and at any given instance, the business should avoid monopoly by any single or cartel of vendors.

(b) In case of vehicles being hired (Taxi) from the vendor for company’s designated officials, the following parameters shall apply :-

(i) Administration Deptt shall obtain business approval for hiring a particular vehicle indicating the person for whom it is hired, the duration of hiring and the type of vehicle to be hired.

(ii) On receiving the approval, the Administration Department shall call for quotations from different vendors.

(iii) Lowest bidder shall be given the business keeping the quality of the services in mind.

(iv) In the case of monthly hired vehicles, specified contractual monthly rates shall not be exceeded.

(v) There shall be a log book (containing Km reading at start of duty, Place from and to, Km reading at end of duty, Total Mileage done, duration of duty etc) maintained for each vehicle and the same shall be signed by the user every day. Details mentioned in the log book shall be deemed authentic and vendor shall be paid accordingly.

2. The present issues involve all or some of the above business processes and how their violation effect the company. Such violations have a telling effect on the company bottom line. Details of the same are narrated in subsequent paragraphs.

THE DETECTION OF POSSIBLE AVENUES OF VIOLATIONS OF ABOVE PROCESS

3. During one of the routine conversations with internal administration department, the discussions revolved around vehicle hiring process. It emerged that every month the vendor is paid out for much more mileage than what is routinely contracted for. For example, the vehicles are contracted at specified rates for 3000 kms per month, vendor would claim for about 4000 Kms and was paid out accordingly. It also emerged that such vehicles are hired for officers of the rank of AVP and above (in exceptional cases for official of lower designation also). Later the topic got changed but this casual remark set the investigators thinking.

4. The following implications of above inputs were evident :-

(a) The contracted mileage translates into vehicle being hired for doing 100 Kms per day for all 30 days of month including on Sundays and Holidays.
(b) The level of officials for whom such hiring is done are generally ‘Office’ bound. Though, out station supervisory visits are also common.

(c) Just to cross check the facts, it was found that they did not attend office on the following days of the month :-

(i) On Sundays and Holidays (Four days deducted from 30 days of calendar month).

(ii) They remain on outstation tour for 3-4 days a month (another 3-4 days deducted).

(iii) It implied that on an average, the vehicle must run for 136 Kms every day, just to reach the contracted mileage of 3000 Kms per month. For being eligible to claim for 4000 Kms the vehicle should run about 180 Kms every day.

(iv) Travelling this distance in place like NCR, it would require about 4-5 hours of travelling every day.

5. Generally the vendor was regularly claiming to have exceeded the contracted mileage, the above analysis warranted a detailed inputs as to how this was being done and being claimed.

THE PROOF

6. Some leg work was involved in terms of visiting various local taxi vendors. The guise taken was that we are also the ones looking up to set up taxi services in their collaboration and wanted to learn the tricks of trade. Efforts paid off when during one such visits, one of the established taxi vendor taught us the trick. He claimed that there are gadgets which can inflate the kilometres being done by the vehicle even when the vehicle is stationary. On further insistence, he directed us to a particular local market in Delhi, where such gadgets are available. The term used for such gadget was ‘FIRKI’. Installing FIRKI would enable our taxi driver to inflate the mileage of even stationary vehicle.

7. Next logical step was to visit the local market and see for ourselves the indicated gadgets. The shopkeeper was more than eager to help us in correct selection based on the kind of speedometer our vehicle is fitted with. He explained as follows :-

(a) Vehicles With Digital Speedometers. For such vehicles the device required was digital FIRKI. In that a small gadget is fitted under vehicle dash board with a hidden switch. The switch is not visible to unsuspecting customer. The device draws current from vehicle battery and is connected to speedometer. Under normal circumstances, when the vehicle moves, the original speedometer gets electrical impulse in proportion to vehicle speed, which makes the speedometer record the inputs. However, this device (FIRKI) also does the same thing but in stationary vehicles. When the switch of the device is switched on – it provides the impulse to vehicle speedometer thereby making it record speed and Kms. The cost of such device is Rs 250 to 350 depending upon type of vehicle.

(b) Vehicles With Gear Type Speedometer. Vehicles of older version are fitted with gear type speedometers. In such vehicles a small modification is carried out to fit additional gear. This gear makes the speedometer move. The additional gear has an attached cable whose open end is conveniently accessible to driver. When the vehicle is stationary, all that driver needs is to rotate this extended cable to make the speedometer move and record additional Kms of stationary vehicle.

8. In such a way, the vendor was able to artificially inflate the kilometres of vehicles and claim on such inflated mileage. Such vendor was able to cause a very heavy loss to the company by resorting to dishonest means.

9. Lessons Learnt. Though the laid down business process / Standard Operating Procedures are apparently strong and foolproof but still they failed due to the following reasons :-

(a) Generally, a strong comfort zone gets developed between the vendor and administration department. The reasons are simple – the vendor will not like to loose client and administration persons are saved efforts to cultivate some one new. This relationship is obvious fall out of lack of supervisory controls.

(b) Vehicle users (Senior Officials of the company) generally feel that it is below their dignity to verify the Kms being recorded in log book and being signed for by them. The drivers were also smart, they never presented log book for signatures at end of day. Instead, they used to present the same on periodic basis. More diligence by users would have prevented the loss.

(c) Checks by administration department and commercial department while scrutinizing the bills, were given a ‘go by’ thinking it to be a routine affair rather than part of their serious duties. Basic common sense checks by them could have helped in detection at early stages.