Final Project
Bill Carter spent the last 22 years of his life working for Cardinal Wholesalers, Inc.— a Fortune 500 company with over 300 places nationwide operating a grocery shop chain. His work as a buying department supervisor paid him a $60,000 annual wage enough to help his wife and three kids. Now he was unemployed, fired, to be precise and for what?
Bill required to discover a fresh source of revenue immediately or he would not be able to make payments on family debts, which included: a monthly mortgage payment of $1,980, a monthly vehicle payment of $900, a monthly minimum payment of $450 on exceptional loan card debt of $38,000, and educational expenditures for his eldest kid who attended a costly high education center.
Vendor Fraud
Vendor fraud is a common type of criminal activity in the United States and falls under the billing or the extortion schemes. In most cases, most forms of vendor fraud involve employees who work or worked for an organization before, the organization that acts as the victim. More current and contemporary ways of curbing vendor fraud are being developed and implemented to reduce the criminal menace in the business field.
Vendor fraud can be determined in several different ways that present themselves as suspicious or out of the ordinary. Most fraudulent vendors falsify billing documents that are directly related to the company’s billing system. Falsifying billing documents means that the company will pay the vendors or any other persons who influence their decisions for services that are not rendered or for work that is not done.
Another form of vendor fraud is the check tampering that involves vendors tampering with the checks. The vendors may cash out checks on behalf of the company or organization for services or goods that are not offered taking advantage of their position at work and the trust and responsibility the company shoulders on them.
3
Fraud examiner’s checklist
Check to ensure that the documents are all real and install internal controls such as verification procedures to distinguish between real and falsified billing documents.
Check out the inventory and look for old items that are in existence within current bank details because they act as loopholes for embezzlement of funds.
Look for altered documents, with additions or subtractions out of the normal way of recording billing activities.
Install systems that act as duplicate finders, to look for duplicate files and records that the vendors can use as loopholes to extort the business organization.
Insensible document sequences, questionable handwriting that render vendor records ambiguous and open to multiple interpretation.
Inaccuracies and unbalancing ledgers in the books of accounts that are maintained by a certain vendor.
Other activities can also be looked out for such as unexplained inventories, unexplained purchases, unexplained increases or decreases that occur within the records.
Implementation of policies that are against vendor fraud and instilling hefty penalties of parties found to have perpetrated fraud within the company.
Investigating and identifying vendor fraud is a key aspect that most companies and business organization require to have a flawless system. A valid vendor must first avail their tax identification number recognized by the IRS, contact information and their physical address that may be required in cases of misappropriations.
4
Fraud prevention policies
Data mining techniques are an important method of curbing vendor fraud within given business organizations.
Price fixing is also an important method that any organization can use to reduce the instances of vendor fraud.
Segregation of duties is also an important method of preventing vendor fraud within any business organization.
Establishment of anonymous fraud hotlines for random people to report fraud without disclosing themselves to reduce their fear is also important.
Data mining technology serves to create vendor benchmarks that are consulted in instances of misappropriation of resources or anomalies in the billing record keeping. The vendor benchmarks run a check through the data recorded during purchases and can identify any forms of misappropriations that are in progress within the business organization.
Fixed pricing is easier to follow up where the units sold or bought are exact and already determined. Price fixing can involve negotiation with other competitors which can take a lot of time and a short time where there is only one seller within the market.
Where different duties are delegated to different personnel it becomes easier to track the progress of the work and to hold different people accountable for the misappropriations at different stages throughout the entire scandal.
Most people are motivated to take part in the elimination of vendor fraud without fear of intimidation if they act anonymously.
5
Detection of Fraudulent Vendors
Fraudulent vendor detection is an instrumental skill in financial auditing. Certain aspects are involved in the detection of fraudulent vendors within any given vendor database. The identification of red flags is necessary such that, these red flags can be used with dedicated programs to arrive at the intended result. Excel and Idea Analytics are the main computer programs used in this case to identify fraud within vendor databases.
Figure1.0 Idea analysis of invalid or unavailable taxpayer ID
Figure1.1 Idea analysis of vendors lacking phone numbers
Figure 1.3 Idea analysis of duplicated addresses
Figure1.4: Excel auto-filter showing invalid Taxpayer ID
The Right Culture within the Organization.
For organizations, dishonesty can be crippling, with high-profile cases causing both public embarrassment and significant damage to organizations and their leaders. There have been different reasons why this topic is more or less tabulated.
First, it is difficult to define morality, particularly without becoming too abstract, and writers of management are usually allergic to metaphysics. Second, defining individuals as unethical (though alternate words – unprincipled, deceptive, and fraudulent – are hardly euphemisms) is controversial. But the reality is that in most companies they have an employee who is always willing to go beyond their means for extra money, usually this behavior constitutes a type of fraud for the organization, and is defined as two ways, the vendor and the pass-through schemes, which always has to have an accomplice in the purchasing department.
11
Billing and Vendors Fraud
A billing scheme is a scam in which an employee induces the complainant to make fraudulent charges by issuing invoices for fake goods or services, fabricated invoices, or private transaction invoices.
Billing schemes are usually described through different categories, schemes for shell companies, non-compliant supplier schemes, and schemes for personal purchases.
Shell companies are fictional organizations created for anonymity's sole purpose.
The businesses are generally discreet and therefore almost impossible to trace the money that goes into and out of their accounts, which makes them even more effective in committing fraud. An employee who wants to commit fraud will simply invent an invoice for fake goods and services to provide the victim organization with cash. On the other hand, non-accomplice vendors is a kind of fraud where the fraudsters use invoices to produce fraudulent transactions on behalf of current vendors.
12
Approaches that can be implemented by a company to reduce the risk of vendor fraud.
Division of duties should be defined.
Perform a weekly analysis of all of these roles as well.
Search all vendor tax ID numbers and phone numbers as well as descriptions of vendor ownership through the databases of state-owned business organizations.
Have someone who does not regularly review all new vendors in your vendor set-up department.
Hot line is one of the most important approach to prevent any type of fraud.
Security and financial background checks of all employees before be hired.
It ensures that there should be specific distinctions between the person approving and/or requesting goods and services and the person handling invoices or payments for those goods or services, meaning that the person receiving bank statements and reconciling bank accounts is also separated from those duties.
Make sure that all vendor accounts are set up with due diligence. Make sure your mailing addresses don't match your employees ' names. If a P.O. Box is used, verify its legality.
13
How to Prevent Vendor Fraud Flowchart.
MEMORANDUM TO CLIENT
To: Debbie Roberts
Chief Loss Prevention Specialist, Cardinal Wholesalers
From: Leodan Benitez
Date: October 20, 2019
RE: Fraud Examination Report.
This report follows an investigation of fraud that has been conducted inside the organization. The report concludes that Cardinal Wholesalers perpetrated an incident of fraud by Bill Carter, a former employee of the business organization. A sum of $1,758,500 was lost to the business organization. To cheat Cardinal Wholesalers, Bill Carter used a Shell Company, which is an inactive organization used for different financial maneuvers or kept dormant in some other capacity for future use, the scheme was false where the company paid for products it did not receive. Tri-State Trucking Incorporated is the fictitious entity that Bill Carter founded at his physical address in his own name with a post office box.
Strategies such as impromptu searches and review your list of vendors on a periodic basis are important to reduce seller fraud cases. Often critical in preventing vendor fraud is the introduction of information technology in the evaluation and validation of purchase data. Also, helpful in mitigating financial losses from fraud is including external institutions in screening vendors before approving proposals.
References
ACFE (2015) Introduction to Fraud Examination. Retrieved from: https://www.acfe.com/uploadedFiles/Shared_Content/Products/Self-Study_CPE/Intro%20to%20Fraud%20Examination_Excerpt.pdf
Dimoff, T. (2016). 4 ways to prevent vendor fraud. Sight. Retrieved from: https://i-sight.com/resources/4-ways-to-prevent-vendor-fraud/
Bush, B. (2017). Three ways to identify and combat vendor fraud. RSM. Retrieved from: https://rsmus.com/what-we-do/services/financial-advisory/forensic-accounting-and-fraud-investigations/three-ways-to-identify-and-combat-vendor-fraud.html
Bendele, D. (2017). 3 ways to recognize vendor fraud. The business journals. Retrieved from: https://www.bizjournals.com/bizjournals/how-to/funding/2017/01/3-ways-to-recognize-vendor-fraud.html
Killen, K. (2017). Fraud Audit Checklist. Bizfluent. Retrieved from: https://bizfluent.com/info-8294860-fraud-audit-checklist.html
Martha Howe (2011) Reducing Vendor Fraud Risk. Retrieved from: https://www.acfe.com/article.aspx?id=4294969261
Pearmain, G. (2015). Invoice fraud – a real threat to your business. Cripps Pemberton Greenish. Retrieved from: https://www.crippspg.co.uk/invoice-fraud-real-threat-business/
Verver, J. (2019). 10 ways to identify accounts payable fraud. Galvanize. Retrieved from: https://www.wegalvanize.com/fraud/identify-accounts-payable-fraud/
Warner, C. L. (2019). 10 Ways to Identify Accounts Payable Fraud. AuditNet. Retrieved: https://www.auditnet.org/audit-news/articles/accounts-payable-fraud-10-ways-to identify-it