Fraud Tip Friday!

Fraud Never Sleeps: Insights from a Forensic CPA’s Perspective on the Takeda Case and Key Takeaways

Overview

The recent case of Priya Bhambi, a former Takeda Pharmaceuticals employee sentenced for a multi-million dollar embezzlement scheme, serves as a stark reminder that fraud can infiltrate even the most reputable organizations. Bhambi’s actions—executed right under the noses of senior management—highlight the devastating effects of weak internal controls and the dangers of complacency. When combined with findings from the Association of Certified Fraud Examiners (ACFE) 2024 Report to the Nations, this case illustrates the need for organizations worldwide to reassess their internal controls and fraud detection strategies to prevent such costly and damaging incidents.

Uncovering the Takeda Scheme: A Case Study in Control Failures

In early 2022, Bhambi, a senior employee in Takeda’s technology operations, devised a plan with her then-boyfriend, Samuel Montronde, to siphon more than $2.3 million from the company. Montronde established Evoluzione Consulting, a fake consulting firm with a slick website and legitimate tax ID. Bhambi then created a $3.5 million purchase order for Evoluzione, despite it never providing any actual services. Over the next eight months, Montronde submitted five invoices for $460,000 each—transactions Bhambi authorized, exploiting her position to bypass control mechanisms.

The embezzled funds were used lavishly: a luxury Mercedes-Benz, a diamond ring, and deposits on a luxury condo. Bhambi’s scheme finally unraveled, resulting in her firing and sentencing to four years in prison with an order to pay $2.6 million in restitution. Montronde awaits trial. In retrospect, this case paints a sobering picture of how a well-placed employee, with the right (or wrong) knowledge, can bypass weak controls and exploit them for personal gain.

What stands out in the Takeda case is not just the scheme’s simplicity but its stark alignment with broader fraud patterns that ACFE’s 2024 Report to the Nations has brought to light. Let’s explore these findings and connect them to lessons from the Takeda case and other notable fraud cases in recent years.

Key Findings from the ACFE 2024 Report to the Nations: The Bigger Picture

According to the 2024 ACFE Report, occupational fraud remains a persistent and costly threat to organizations of all sizes and sectors. The report, based on 1,921 cases from 138 countries, found that global organizations collectively lose an estimated 5% of their annual revenue to fraud—a loss that exceeds $3.1 billion annually. The findings underscore the broad and pervasive nature of occupational fraud, providing critical insights into how it occurs and what organizations can do to detect and prevent it.

Fraud Detection: The Role of Whistleblowers and Tips

One of the most compelling findings from the ACFE report is that tips remain the most common method of detecting fraud, responsible for uncovering 43% of cases. The majority of these tips come from employees within the organization, underscoring the importance of fostering a culture where employees feel empowered to report suspicious activity. In cases like Takeda’s, the absence of early detection mechanisms, such as an empowered whistleblower program, allowed Bhambi’s scheme to operate undetected for over eight months, inflicting substantial financial damage.

Internal Control Weaknesses: The Achilles’ Heel of Fraud Prevention

The ACFE report emphasizes that over half of fraud cases result from weak internal controls or the outright override of existing controls. This aligns closely with the Takeda case, where Bhambi exploited gaps in vendor verification and approval processes. Without rigorous, enforced internal controls and multiple layers of oversight, fraud schemes can easily bypass detection, causing significant financial and reputational harm. The Takeda case exemplifies how insufficient due diligence on third-party vendors and a lack of segregation of duties can make even large corporations vulnerable to insider fraud.

Fraudsters’ Behavioral Red Flags: The Signs We Overlook

The ACFE report found that 84% of fraudsters exhibit at least one behavioral red flag before or during the commission of fraud. Common indicators include living beyond one’s means, financial difficulties, and an unusually close association with vendors or customers. In Bhambi’s case, her sudden acquisition of luxury items, such as a high-end vehicle and expensive jewelry, might have served as early warning signs if appropriate monitoring and oversight were in place. Recognizing these red flags can be a vital part of fraud prevention and detection, yet organizations often overlook them until it’s too late.

Similar Cases: A Stark Reminder That Fraud Never Sleeps

The Takeda case is not unique. In fact, it mirrors several recent high-profile cases that demonstrate just how easily employees can exploit internal weaknesses and evade detection. These cases serve as reminders that, as long as gaps in control exist, fraud will find a way to thrive.

Capital One Financial Analyst Fraud (2022)

In 2022, a Capital One financial analyst used his knowledge of internal systems to embezzle over $3 million. By setting up a shell company and creating false invoices, he was able to divert funds for personal use, highlighting the risks posed by employees with intimate knowledge of organizational systems. This case underscores the need for stringent approval processes, multiple layers of oversight, and enhanced controls over those who have access to financial processes.

U.S. Government Employee Embezzlement (2021)

A former Department of Defense employee managed to embezzle over $1 million by creating a fictitious company and submitting false invoices for unrendered services. This scheme went undetected for months due to a lack of adequate due diligence and a breakdown in segregation of duties—similar issues that enabled Bhambi’s actions at Takeda. Even government agencies, with typically stringent checks, are not immune to fraud when control gaps exist.

Coca-Cola Internal Fraud Case (2020)

An IT manager at Coca-Cola colluded with an external vendor to inflate invoices and funnel money into personal accounts. The fraud went undetected for over a year, resulting in significant financial losses for the company. This case demonstrates how collusion between employees and third parties can exploit insufficient vendor management, approval protocols, and audit processes. Coca-Cola’s experience highlights the importance of not only establishing controls but also regularly auditing and testing their effectiveness.

Lessons Learned

One recurring theme in these cases is the similarity between fraud and corruption schemes, both of which often stem from similar internal control failures. Bhambi’s actions at Takeda, for example, closely mirror a typical Foreign Corrupt Practices Act (FCPA) violation, where an employee creates a sham entity to funnel money out of the company for personal gain. The only difference here is that the funds went to personal luxuries rather than a bribery scheme.

To address this, from a forensic CPAs perspective, emphasize the importance of unified fraud and corruption controls, which include:

• Rigorous Due Diligence: Organizations must verify the legitimacy, ownership, and operational history of third-party vendors.
• Segregation of Duties: High-value transactions should require multiple approvals from different departments to prevent a single individual from authorizing payments.
• Regular Audits and Testing: Controls must be regularly reviewed and tested to ensure they function as intended, with adjustments made as needed.

Practical Steps for Strengthening Internal Controls

The Takeda case and ACFE’s findings illustrate several critical actions that organizations can take to fortify their defenses against fraud:

Implement Stronger Vendor Due Diligence Protocols

Consulting services and other high-risk categories should be subject to enhanced scrutiny, including background checks, service verification, and clear documentation. Simple measures like verifying vendor information and requiring documentation of services rendered can drastically reduce the risk of fraudulent vendors.

Require Multi-Level Approval Processes and Enforce Segregation of Duties

Every purchase order, especially for large amounts, should require multiple layers of review and approval, ideally from departments outside the requester’s direct chain of command. By spreading responsibility across multiple parties, organizations can reduce the likelihood of collusion and unauthorized transactions.

Foster a Culture of Integrity and Whistleblower Empowerment

A company culture that promotes ethical behavior and encourages employees to report red flags is invaluable. Employees are often the first line of defense in detecting fraud, and organizations should make it easy and safe for them to report suspicious activities.

Continuous Monitoring and Regular Policy Compliance Audits

Controls are only effective if regularly tested. Auditing compliance with anti-fraud policies helps ensure they function as intended. Automated contract management systems, monitoring tools, and periodic reviews of vendor relationships can help detect anomalies early.

Closing

The Takeda case, other recent fraud schemes, and findings from the ACFE 2024 Report all point to one conclusion: fraud never sleeps, and it can strike any organization with control gaps or oversight weaknesses. Forensic CPAs, compliance officers, and internal audit teams must collaborate closely to build and maintain a robust fraud-prevention framework that adapts to new threats and fosters a culture of transparency. By proactively identifying vulnerabilities, continuously monitoring controls, and empowering employees, organizations can protect themselves from the costly impact of fraud and corruption.

Have a great weekend!

Jonathan M.

#fraud #controls #monitoring

Disclaimer: The views expressed in this analysis are my personal opinions and do not represent the positions of any organization. The companies and cases mentioned herein are included solely for educational and illustrative purposes to highlight lessons in fraud prevention and internal controls. No endorsement or criticism of any company is intended