Fraud: nightmare of any business or lender in Commodity Trading.
Backis faces up to 20 years in prison, a three-year term of supervised release and a fine of up to $250,000 when she is sentenced on March 28, 2017 by U.S. District Judge Mae A. D’Agostino in Albany. As part of her guilty plea, Backis has agreed to pay Cargill at least $3.5 million in restitution and to forfeiture of her house in Athens, an investment brokerage account, and her Cargill pension benefits.*
Ms. Diane Backis, former accounting manager at Cargill, pleaded guilty on Nov. 28 to stealing at least $3.1 million from the Minneapolis-based company over a 10-year period.
While at Cargill, Ms. Backis was responsible for accounting functions in Albany related to the company’s grain operations, including creating customer contracts”.
$310,000 per year on 10-years at a Cargill terminal was perhaps .2% that could have been dissimulated into the grain pile shrink.
Then came a year where the U.S dollar (high) has impaired the export business… Someone in Minneapolis has inquired the terminal receiving less quantity of a grain product about why the shrinkage remains the same in Albany ?
Regrettably, employee thefts happen everyday in commodity trading (it even happens to Cargill).
These high-profile cases put the deceit under the microscope.
Never assume that the good company of yesterday will not become the rogue counterparty tomorrow. Even the best banks have been fooled.
False positives in Commodity Trading
Because sales often prevail over security, the focus is on suspecting fewer counterparties and transactions of being fraudulent.
We always assume that the null hypothesis is true.
H0=the counterparty is good
Given that this null hypothesis is true, the mean is usually equals to some value so we create some distribution.
Then we have statistics and we say if the null hypothesis is true, what is the probability of getting a result equal or more extreme than that statistic.
Example there’s only 1% chance of getting a result that extreme or greater, we are assuming the null hypothesis is true. There is some threshold that if we get a value any more than that value, there’s less than 1% chance of that happening.
Given it’s so unlikely to get a result like that, assuming that H0 is true, there is say , 0.5% that we reject the null hypothesis.
It is the story of a trader. During years everyone was comforted in the null hypothesis.
Days before liquidating, their marketing rep was calling everyone in the trade, even slowed down the loading rate at the export terminal to book more commodity for a 3rd panamax.
A big hole in the books was uncovered by the principals earlier when the company divested a division.
The firm’s position materially changed.
The management has chosen to do a low blow to its vendors and creditors.
Manager: What is this position ?
Traders – “never mind” it is just “something”…
The trading manager at the company should never take what a trader says at its face value. Question him at least…
Oftentimes a management is comprised predominantly of traders, predisposed to defend their books.
This management might be reluctant to recognize losses or market valuations they considered “below fundamentals” or protect the information on certain aspects of their business which can make their entity less attractive at a point in time to their stakeholders or counterparties.
Every traders aspire to trade more… but some companies also used complex transactions in order to receive loans they don’t necessarily qualify for.
A very procedural verification ensures that there is no fraudulent transactions. All the explanations and answers given must be plausible.
The process for early detection is
Commodity Trading Forensics=>
Finding the Traders blowing-up good companies with lousy deals.
Probabilities and statistics=>
Fitting various statements and metrics with distributions
Accounting Forensics =>
Finding the abuses in IFRS and U.S Gaap financial reporting.
There are distribution analysis that I can perform to reveal these anomalies and when required, questions have to be asked.
Regrettably, there are ongoing frauds and employee theft everyday in Commodity Trading.
Simon Jacques is a certified Energy Risk Professional, as distinguished by the prestigious Global Association of Risk Professionals.
Know your Counterparties.
P&C / 1-226-348-5610
keywords: CARGILL, FRAUD, KYC.