Artem Kovbel on Three Forensic Audits, From Procurement Pitfalls to Cash Flow Cover-Ups

Artem Kovbel has a rule about where companies lose money, and he calls it an axiom. It happens at the point of procurement, when cash leaves the building, or in sales, when the books say a profit was made. The forensic auditor, who investigates financial fraud for business owners, says three audits his team completed illustrate the rule better than any theory. One was at a company whose purchasing was run by its own top managers, one at a financial firm with $6 billion in annual revenue, and one at a farm business that had not shown an operating profit in four years.

Kovbel counts them among the most prominent cases he saw in the first quarter of 2025. None involved an outside attacker. In each, the money was put at risk by people the owner trusted, inside processes nobody was checking.

What the three cases have in common

Before the cases, Kovbel sets out what he sees across his work:

• As long as people work in a business, it is exposed to fraud. Greed is part of human nature, and that is what makes companies vulnerable.
• Automating a process changes where fraud can hide, so owners should look closely at what exactly they automate.
• Trust is one of the strongest enablers of wrongdoing.
• The defense is an internal control system that keeps being improved, not one that was designed once.
• A forensic auditor's job is to confirm that the controls are in force, not merely written down.

Case one: a procurement department that approved itself

The first engagement lasted six months. By the end of it, Kovbel's team had found that more than $10 million had been spent inefficiently. The risk sat in procurement, and the main participants were the company's own top managers.

The scheme was possible because of gaps in the control system. Managers coordinated among themselves. Regulations were approved by one side only. Primary documents got little attention, the owner's trust was high, and internal auditors checked irregularly. External auditors had not looked at the area in five years.

His recommendations to the owner:

• A clear procedure and policy for tender procurement.
• Rotation of contractors every six months.
• A review of the rates paid to contractors.
• Primary documentation for every transaction, without exception.
• Removal from the supplier list of any contractor that does not meet the requirements.
• The four-eyes principle, so that no single person can approve a purchase alone.

Case two: $16 million at a $6 billion company

The second audit was of a company in the financial sector with annual revenue of $6 billion. The team analyzed external and internal threats, checked business partners and the subordinates of top managers, reviewed the internal control systems, and looked for schemes that could lead to company assets being taken illegally. It also advised on correcting accounting errors, making business processes more transparent and improving cybersecurity.

What they found:

• No clearly defined accounting policy.
• Decentralized budgeting, which distorted the financial results.
• Transactions with no underlying goods or services.
• No non-disclosure or non-compete agreements signed with C-level executives.
• Too little automation in accounting, and the ability to change accounting data retroactively.
• Conflicts of interest among employees involving related parties.
• Use of a salami scheme when concluding contracts.
• No accounting for fixed assets.
• A procurement procedure that was not transparent.
• No shareholders' agreement.

The amount at risk was $16 million. Set against $6 billion of revenue that looks small, and Kovbel says as much. But the business runs on a margin of 2.2%. On those figures the margin is worth about $132 million a year, and the amount at risk is roughly an eighth of it. To the owner, he says, it is material.

When the project ended, the client offered Kovbel a seat on the company's supervisory board. He describes that as a fairly common practice, and he accepted.

He also argues that an audit of this kind does something beyond restructuring financial flows. It reassures the owner. Once the report is in, the areas that need attention are known, and much of the uncertainty goes with it.

Case three: the farm that never made a profit

The third project was in agriculture. The majority shareholder, who held 75%, had withdrawn from operational control before the war started. For the next four years the company showed no operating profit, and the client received no dividends, because there was nothing to distribute.

Competitors in the same region were reporting operating profits. That was what made the client question whether the financial result was real. The forensic procedure identified risky transactions equal to approximately 10% of the company's revenue.

Among the risks the team identified:

• No accounting policy, which led to a distorted financial result.
• Depreciation calculated incorrectly.
• No primary documents for a number of material transactions with counterparties.
• Assets that were not on the balance sheet, evidently bought for cash.
• Cash transactions that may not have been recorded at all.
• Errors in the accounting for fuel and lubricants.
• Problem receivables that the legal department was not pursuing.
• Production costs formed incorrectly, which also distorted the result.
• A mismatch between the VAT in the tax return and the VAT in the company's accounts.
• Penalties for late payment of taxes.
• The risk of transactions with no underlying goods.
• The risk of products being sold for cash without appearing in management accounts.

His recommendations:

• Tax and financial audits at least once a year.
• A written accounting policy.
• Control of accounts receivable.
• A regular, independent inventory of current and non-current assets.
• Restoration of the missing primary documents and of the accounting records.
• A financial controller appointed by the owner. The role had been held by a relative of the partner's financial controller, which Kovbel calls an obvious conflict of interest.

The lesson for owners

That line is Kovbel's summary of the third case, and he applies it to all three. An owner who steps back needs a regular financial check in place of his own attention: a forensic audit, or at the very least a mandatory audit of the financial statements.

No company and no individual is immune to error, he says. The ones with the best chance are those that commit to continuous improvement, the principle Japanese manufacturers call kaizen. In his view ordinary effort is no longer enough in a competitive market, and only extra effort counts.