False vendor schemes seem more vicious than most types of embezzlement. The employee sets up a fictitious vendor and submits low amount invoices for payment. This is easier than you might think. And if the employee sets up a website, E-Mail, phone number and a separate bank account for the false vendor, the scheme stands up to casual scrutiny. But, for most of the false vendor schemes reported, the employee isn’t usually that smart. Just greedy.
“Fraud prevention is more effective than fraud detection.”
- Gary Bode, QuickBooks CPA
False Vendor Scheme Prevention and Detection
Prevention
A good QuickBooks CPA helps establishes internal controls throughout the accounting process, thus reducing opportunity based fraud. Talk to your CPA about them. Not allowing the same employee to receive bills and decide who to pay is one example. Performing credit checks on all new vendors is another. Be skeptical. Fraud happens and it could happen to your company.
Detection
- Cross reference employee direct deposit bank account numbers to bank account numbers of direct deposit vendors. Employees sometimes use their own bank account.
- Cross reference employee and vendor addresses through a customized QuickBooks report.
- Examine all invoices as you approve payment. No folds? Even dollar amounts? No sales tax?
- Examine the vendor hard copy files. Consecutive invoice numbers?
- Review vendor cancelled checks. Most companies use a rubber stamp.
- Run a QuickBooks report that shows vendor names, telephone numbers, addresses, contact person, and Employer Identification Numbers. Look for company names using initials. Look for missing or mis-formatted info.
- Run QuickBooks vendor reports showing payments over time. Greed and confidence may escalate with time.
- Periodically Google all vendors. No website raises suspicion.
- Periodically call all vendors.
- Periodically correlate all purchased goods and services to company use.
