The CEO's Three Vendors

01The situation

Three vendors with no offices, no other customers and one common controller: the CEO who hired them.

A diversified group's agri-retail subsidiary was rolling out a network of rural franchise stores. Franchisees began complaining about the equipment and fit-outs they were receiving, and a management inquiry raised questions about the subsidiary CEO's outside interests. The group asked us to establish the facts.

02How it worked

1. 01Before the new business line was approved, the CEO positioned loyalists. An internal IT employee left to run a dormant company, and the CEO's personal adviser joined it as a director weeks before approval.
2. 02Days after board approval, that company received the combined IT and point-of-sale contract with no competing quotes. The subsidiary's existing, genuine IT suppliers were pushed down to become its sub-vendors.
3. 03Refurbished hardware bought from those suppliers was invoiced to the subsidiary as new, at roughly three times cost, under bundled descriptions that defeated line-by-line comparison.
4. 04A second associate's dormant one-person company won the multi-crore store fit-out contract despite negligible prior turnover. Its name and objects were changed only after signing, and the real fabricator became its sub-contractor.
5. 05A third supplier, owned by a relative of a staff member, supplied store fixtures at about 75% above market. The staff member drafted its quotations herself.
6. 06Payments were timed to the fronts' cash needs rather than the project plan, then moved through two to four hops labelled as temporary or hand loans before funding card bills, gold, property bookings and investments for the CEO and his allies.

03The challenge

Establish who really controlled the rollout's principal vendors, whether prices and supplies were genuine, where the contract money ended up, and which suppliers in the chain were legitimate, while working around a subject who had been forewarned and had cleaned his devices.

04Our approach

1. Workstream 01

   Procurement reconstruction

   Rebuilt how each vendor was introduced, selected and paid, against the group's own sourcing rules.

2. Workstream 02

   Corporate and statutory records

   Incorporation history, director changes, tax registrations and prior turnover of every counterparty.

3. Workstream 03

   Ground intelligence

   Discreet verification of vendor premises, operations and true control.

4. Workstream 04

   Funds-flow tracing

   Followed contract payments through allied firms and individuals to their end use.

5. Workstream 05

   Price and supply verification

   Benchmarked supplied goods and rates against market sources and the genuine suppliers' own costs.

6. Workstream 06

   Evidence recovery

   Rebuilt the record from bank trails and preserved communications where devices had been cleaned.

05What we found & did

• The IT and point-of-sale vendor was a front controlled by the CEO, and refurbished hardware was sold to the company as new.
• The fit-out contractor was a paper entity holding an inflated contract.
• A fixtures supplier linked to a staff member charged inflated prices on documents she prepared.
• Contract money was recycled into the CEO's personal investments.
• The CEO held an undisclosed directorship in a customer company.
• Evidence pointed to gold, property and cash being accumulated for the CEO.
• The suppliers beneath the fronts were cleared: they were genuine operating businesses.

06The impact

07Lessons for your business

The controls that would have stopped this, or caught it sooner:

• Competitive sourcing and vendor diligence must bind the CEO's own decisions.
• Check a vendor's incorporation history and related-party links before the first award.
• Reconcile vendor tax registrations against filings every month.
• Keep payment release independent of the person who chose the vendor.
• Secure devices and mailboxes before confronting senior subjects.