Manager accused of orchestrating fraud scheme with external suppliers
Singapore's High Court recently dealt with a case involving a marketing manager who faced allegations of orchestrating a fraudulent scheme over seven years, siphoning money from her employer through fake purchase orders and conspiracy with external suppliers.
The worker's estate denied all claims and argued that the employer's management was fully aware of and had effectively consented to the alleged scheme.
The defence maintained that senior management, including executive directors, had approved the arrangements and that the company could not claim ignorance of activities it had sanctioned.
The estate also argued that the employer could only prove actual financial loss for a small fraction of the transactions it claimed were fraudulent.
Employee duties breach allegations emerge
The marketing manager headed a local sales team at a precision engineering company that manufactured component parts for automotive, electronics, semiconductor and aerospace industries.
Between 2013 and 2019, the employer alleged she exploited the company's sales procedures to create 236 fraudulent purchase orders, working with a manager from an external supplier company.
The employer's sales procedure operated through a process where customer purchase orders would be entered into the company's computer system to generate corresponding sales orders. The company would then issue its own purchase orders to either its in-house production facility or third-party suppliers to fulfil customer requirements.
The employer alleged that the marketing manager manipulated this system by creating fraudulent purchase orders to be linked to customer purchase orders, causing the company to pay the external supply company for work that was never done.
The court found that the marketing manager had breached her employment duties. The judge explained that "employees are bound by an implied duty to serve their employer with good faith and fidelity, and to use reasonable care and skill in the performance of his or her duties under the employment contract."
This duty also includes "a duty not to make use of the employer's property for one's own purposes and a duty to give due consideration to the employer's interests."
Workplace fraud detection proves challenging
The marketing manager concealed her alleged fraudulent activities from the company's managing director and other senior management for nearly seven years.
She limited the number of people within the company who were directly involved in the transactions to avoid detection, according to the court's findings.
The marketing manager personally handled the collection and delivery of parts from the external supplier, which was unusual for someone in her position.
The court noted that "there would be no necessity for her as [the employer's] Marketing Manager to have also acted as a courier for the delivery of parts... if indeed the Scheme had been agreed to by [the managing director]." This behaviour suggested she wanted to ensure that the documentation would not show anything suspicious when examined.
The company's managing director was found to be unaware of the alleged fraudulent scheme.
When the sales and operations manager discovered a transaction showing double billing, the court accepted evidence that "he brought the matter up to [the managing director] and asked how he should handle the situation. [The managing director] instructed him not to alert anyone else as he wanted the matter investigated."
The managing director instructed staff to check the addresses of the external supply company to verify who operated from those locations.
Employment conspiracy allegations
The case revealed how alleged employee fraud can involve external parties. The marketing manager allegedly conspired with the manager from the external supply company, who later gave evidence about how the scheme operated through what the court described as a fraudulent transaction chain.
The external supply company manager explained that the marketing manager had approached her in 2012, claiming she had been approached by a representative from one of the employer's customers.
The external supply company manager described how "the representative of [the employer's] customer would cause a purchase order to be generated by his or her company in favour of [the employer]" and that the marketing manager "would then request that [the external supply company] pay her 90% of the price stated in the [purchase order]."
This alleged conspiracy involved creating fake delivery orders and invoices to make the fraudulent transactions appear legitimate.
The the external supply company manager admitted she "agreed to help [the marketing manager] to take money out of [the employer] so that she could pay [kickbacks] to the customer representative to help her sales target," even though she had doubts about the legality of the arrangement.
The external supply company manager also testified that her company was not capable of manufacturing the precision parts required by the employer.
Worker obligation breaches face settlement complications
The court found that the marketing manager had breached her employment duties, engaged in conspiracy, and been unjustly enriched through the scheme, but dismissed the employer's claim.
This occurred because the company had already received compensation through a settlement agreement with the external supply company.
The court found that the employer could only prove actual financial loss for 27 out of the 236 fraudulent transactions, where genuine double-billing had occurred.
For these transactions, the company had paid both the external supply company for non-existent work and a genuine supplier for the same work.
The judge ruled that the employer "has already been compensated for its loss in respect of the 27 Genuine Supply Transactions by virtue of its settlement agreement entered into with [the external supply company]."
The legal principle of "full satisfaction" prevented double recovery by the employer, as the settlement amount of 60,000 dollars far exceeded the proven loss of 27,955 dollars.
The judge explained that allowing recovery from both parties "would be tantamount to double recovery" even though the employer had proven breach, causation, and loss.
Employment fraud prevention requires careful consideration
The court's analysis revealed that most of the alleged fraudulent transactions resulted in no direct loss to the employer, as the money ultimately came from customers rather than the company's own funds.
For 209 of the 236 transactions, no alternative genuine supplier could be identified through the company's computer system records, meaning no actual goods were delivered to customers who had paid in full.
The judge explained that "where there is no genuine supply, the loss does not lie with [the employer] but with the customer. Instead of a loss, [the employer] makes an unlawful gain on account of the fraudulent Scheme."
The court noted that this explained why the scheme had not been easily detected, as the company was "making money" instead of sustaining real losses in such instances.
The court dismissed both the employer's claim against the marketing manager's estate and the estate's third-party claims for contribution or indemnity.
The judge stated that the company had already been compensated for the loss it suffered from the scheme through its settlement agreement with the external supply company.
