Skip to main content

Bogus vendors may be costing your company a bundle




Are you harboring fictitious vendors in your accounting system? These are vendors invented by an employee — usually someone with the authority to approve invoices — to embezzle from the company. Thieves fabricate invoices and deposit payments to the fictitious vendor in their own bank accounts.

This scam is easier to perpetrate in companies with a large number of vendors because fictitious accounts simply get lost in the sheer volume of paperwork. However, small companies are also vulnerable to the scheme because they often lack internal controls, such as segregation of duties.

Spotting the fake

Regardless of the size of your company, there are likely to be tracks for you to follow:

Missing information. You expect to find phone numbers, taxpayer identification numbers, contact names and specific street addresses (not P.O. box numbers) in your vendors’ files. When such routine data is missing, investigate.

Vendor names. Embezzlers may create a company name that is similar to that of a legitimate vendor, or may use their own initials. But a fraudulent vendor won’t be called Microsoft, Wal-Mart or any other widely known corporate name.

Account activity. A fictitious vendor will probably be active. Because the payoffs are proportional to the effort, fictitious vendors usually don’t send invoices for small amounts. The risk of discovery increases with every transaction, so fake accounts are more likely to involve fewer invoices for larger amounts.

Services vs. goods. Most often, fictitious vendors will supply services rather than goods, simply because it’s easier. But occasionally someone — most often a purchasing agent — establishes a fake company from which to order products. This scam usually requires an accomplice on the receiving dock to record receipt of the goods and simultaneously alter inventory records.

More red flags

Also look for:


  • The absence of credit memos, because there won’t be any billing errors,

  • Prompt payments, because the perpetrator wants each transaction completed as quickly as possible,

  • Similar invoice amounts, which will probably be just below the fraudster’s authorization limit, and

  • One invoice listing per check, rather than the more customary bundling of invoices for payment.

Finally, if only one employee is requesting the company’s services, that’s a sign the vendor may not be legitimate.

They can’t hide

If you sense something isn’t right in your vendor records, don’t let it slide. Regardless of how devious the perpetrator and elaborate the scheme, we can help you uncover the fraud.

Please contact us for additional information

© 2018


Popular posts from this blog

CARES and Families First Payroll Protection Acts - information for Benefit Funds and Labor Unions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act both provide potential relief for nonprofit associations.
We are still awaiting important details on the many provisions of the Acts, but we wanted to provide a summary of some of the programs which will be of interest to our clients.  We will update our materials as additional information becomes available.
We have provided sections below specific to your client type. Please check back to this page periodically for updates and further information.
Relief available to clients from these ActsLabor Unions
Eligible for:
       Employee Retention Tax Credit
       EIDL Loan or Advance

Employee Retention Tax Credit (for Unions)
How these programs interact with each other
SBA Payroll Protection Program and Economic Injury Disaster Loans
Tax filing extensions

Welfare and Pension Plans
Eligible for:
       Employee Retention Tax Credit
       EIDL Loan or Advance

       Note: If the benefit…

CARES and Family First Acts provide potential relief for Unions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act both provide potential relief for nonprofit associations.

We are still awaiting important details on the many provisions of the Acts, but we wanted to provide a summary of some of the programs which will be of interest to our Union clients. We will update this bulletin as additional information becomes available.

Update for Union Clients