We Prepare Tax Returns!

We prepare most type of tax returns:

Individual. 

S Corporation.

C Corporation.

Partnership.

Payroll.

Amended.

Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

Client Video Testimonials

Click here to watch some of our clients in their video testimonials!

Client Testimonials

The recession was hard on me. In 2009 the banks foreclosed a few of my rental properties, than issuing me 1099C's to make the situation even worse. This made my tax liability enormous, as a result I didn't file taxes for a couple of years. I started receiving letters about my unpaid taxes from the government and my job. The accountant I hired in the past really didn't know much about 1099C,,s. That's when I searched the web and found Gary a life saver to say the least, he knew exactly what to do. If I would not have waited three years to file I would not have lost thousands for filing late. I wish I would have found him sooner, the fact that he does taxes in any state is a plus. I truly cant say enough positive things about my experience doing business with Gary. Thanks Again.

Officer D, NYPD

Free Consult

Even though Gary enjoys helping colleagues, we no longer provide free consults to other tax preparers. He's happy to consult on an hourly billing basis if our schedule allows.

Pay Your CPA

Enter $ Below
Other Amount:
Your Email Address:

Fraud CPA discusses False Vendor Schemes

fraud CPA discusses false vendor schemes

Gary Bode, CPA: preventing fraud is more cost effective that detecting it and hoping for restituiton. (910) 399-2705.

Fraud CPAs know that employee theft is a sad fact of life. False vendor schemes show good ingenuity on the employee’s part. The nature of false vendor schemes skews data. Only the clumsy schemes get caught and even then some companies keep that info confidential. How pervasive are false vendor schemes? Hard to say, but when they’re revealed the losses are staggering and can even force the victim company to fold.

I think most fraud CPAs agree that false vendor schemes are opportunistic. An employee becomes disgruntled. S/he notices some flaw in the company’s internal controls. And then deliberately exploits it.

I think most fraud CPAs agree that everyone will steal under the right circumstances. In Grad school I was grilled on my ethics. No I wouldn’t take money if the bank leaves the vault open. Disliking my employer wouldn’t inspire me to steal for vengeance. But if my child was sick I’d do almost anything. And yes, I consider myself normal.

False Vendor Schemes

  • An employee sets up a shell company. This might be as a Corporation through the State or a DBA through the County.
  • Then the employee bills your company for goods and services.
  •  Your company pays the invoice.

Plenty of false vendor scheme variations exist.

Example 1, Inventory Fraud

  • Your inventory supervisor sets up a shell company (the false vendor).
  • The supervisor personally buys inventory that your company actually uses, for the false vendor (the shell company).
  • The supervisor then sells that same inventory to your company at a profit.
  • When you pay the invoice from the shell company, the supervisor then pays off the original purchase.
  • Notice that even a physical inventory count won’t detect this.

Examples of fraud prevention and detection:

  • Establish an authorization process for approving a new vendor with another manager not directly involved in the inventory process. This isn’t fool proof. The approving manager may just rubber stamp all new vendor requests. The possibility of collusion exists.
  • Setup an invoice approval process?
  • Train the accounts receivable department to detect fraudulent invoices. Are they unfolded? Is the address a PO Box? Does it look like a typical invoice? Are invoice numbers sequential? Is the address the same as an employee’s? Is it hand written?
  • Require another employee to sign off on inventory POs (purchase orders). But the inventory supervisor could forge that second signature.
  • The accounting department can run a vendor analysis and verification, perhaps to spot more purchases being made through a single vendor. But the longer this false vendor scheme operates, the harder it is to catch.

“Some fraud is so hard to detect, that external Auditors use a disclaimer stating they might miss it. Good internal controls reduce chances of fraud. Don’t leave barn door open.” 
– Gary Bode, fraud CPA

Example 2, an IT scam

  • Your IT department can’t handle everything in-house. Some circumstances require service from a specialist. Maybe these services are performed remotely, making the trail murky.
  • Secondary to the mysterious nature of IT maintenance, other employees don’t have a clue on what IT does.
  • The head IT creates a shell company to set up a false vendor.
  • S/he produces invoices for services s/he performs themselves. Or creates problems for the false vendor to fix.

Examples of fraud detection and prevention

  • Compare IT costs to the budget. Ask IT about variances.
  • Compare invoices from the consultant. Sequential numbering? Always the same problem being serviced?

Ask your CPA to help you prevent fraud through internal controls. If you don’t have a CPA that worries about fraud, consider calling us for a free meet and greet phone call. We’ve got a virtual office to serve your company wherever it’s located. (910) 399-2705.

 

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>