Final Project

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RESEARCH PROJECT. Vendor fraud scheme

Good evening classmates. Here I bring you my presentation for this fascinating class. I decided to explain this presentation in Spanish because do not fill comfortable speaking English.

introduction

The investigation will focus on examining documents in the areas that are subject to allegations of fraud. As a fraud examiner, an opinion based in facts and evidences obtained from records of Cardinals Wholesalers Inc will be presented. This company required our services to find out suspicious vendors activity and to determine which employees are involved in this fraud scheme.

To arise the goals of this examination we presented an engagement letter to Cardinals Wholesalers Inc in which affirm that it is not intended to provide results on guilt in relation to allegations of fraud. Rather, it is designed to give an opinion in relation to the evidence found.

Shell company schemes

Shell company schemes use a fake entity set up by a dishonest worker to charge a business for products or services that it does not receive. The worker transforms the payment to their own advantage.

Fake Company

Invoices issued to company

Fake Invoices approved by employee (No goods or services received)

Payment approved by employee

Payment issued to Fake Company

Pass-through schemes

Pass-through schemes use an employee-established shell business to buy products or services for the employer, which are then labeled and sold through the shell to the employer. The worker transforms the mark-up to their own advantage.

Company (The Victim)

Buying goods from a vendor

Employee issues order to Pass-Through company.

Pass-Through company buys goods from real vendor

Pass-Through company issues overbilled invoices to company

Cardinal’s case

Schell company scheme

According to the facts and the evidence obtained, the expert opinion allows us to elaborate the allegations shown above. The essential aspects that lead to the suspicion of Schell company scheme fraud were identified.

Tri-State Trucking (Shell Company)

Invoices issued to Cardinals.

Fake Invoices approved by Mike Smith (Trucking Services no received by Cardinals)

Payment approved by Mike Smith

Checks issued by Mike Smith

Conditions in place

Pressure

Opportunity

Fraud

Rationalization

Pressure: Carter’s family debts were increased

Opportunity: Mike Smith was able to approve payments

Rationalization:

Cardinals has a big list of vendors and weaknesses in internal control

Issues with internal controls

“There should be clear divisions between the person who authorizes and/or receives goods and services and the person who processes invoices or payments for these goods or services.” (Dimoff, 2016)

There was not effective policies in the process of approve and install vendors.

Evidences show that were not performed regular oversight and review of purchase process.

Separation of duties is an important element that was not met. Bill Carter was able to approve and issue payments to Schell Company

Determining suspicious vendors

To determine the most suspicious vendors, three items were reviewed in the list of providers: Issues with Tax ID, issues with address and issues with phone numbers. In order to obtain the result showed, the software IDEA and Excel was used.

Fraud incident report log.

Determining suspicious vendors

Services no rendered

Address issues. PO Box address is suspicious characteristic

Additionally, vendor's Tax ID was invalid because it was less than 9 digits.

Ethical issues

There is no evidence that Tri-State Trucking Inc issued any payment related to ordinary business expenses.

All checks reviewed was issued to Visa credit card and personal expenses.

conclusions

According to evidence reviewed and the facts we assume the following opinion:

The list of vendors shows that there are records with suspicious issues regarding Tax ID numbers, addresses, and phone numbers. Such elements could lead the fraud.

Issues with Internal Control such segregation of duties and periodical reviews of the purchase process.

There are evidences to affirm that Mike Smith approved invoices and issued payments to Tri-State Trucking Inc regarding trucking services. The investigation could not be led to the conclusion that such services were not rendered.

Bank Statements of Tri-State Trucking show that were deposited amounts from Cardinal Wholesalers Inc.

Checks from Tri-State Trucking bank were issued to pay Visa credit card and personal expenses. There are no expenses related to regular business operations.

Facts mentioned before represent suspicious situations that confirm allegations of fraud.

Vendor #Taxpayer IDVendor NameAddressCityStZip/PostalPhone #

PCON24-9546254PC ONEP.O. Box 1523FargoND58103

SBF50-327377S & B Foods, Inc.1911 2nd St SEMinotND58701

STAM33-8674361Stamen Floral DistributorsPOBox 493SolonOH44139

CONNThe Connection1342 Summer St.DentonMN56258

TRES31-187286Treshen BeveragesP.O. Box 493MinneapolisMN84343836-652-9584

TST65-12265Tri-State TruckingP.O. Box 10594FargoND58106-0594701-844-4539