The Expert Podcast

This is the same type of scam with a little bit different twist. Here's a case from Oregon where a company was defrauded by an employee and a vendor. This happens to be a grass seed company. Believe it or not, Oregon is a big state for grass seed farms. You can see very large operations that sell grass seed all over the country.

What happened here was an employee in this company allegedly created a relationship with a vendor to buy and sell grass seed, but they were pulling some off on the side. They were skimming from the operation, and this is how frauds happen.

If you're a business owner, here's how you can prevent this from happening. What they did was the two parties involved allegedly would pay a per-pound kickback for grass seed purchased by the other company. The kickback was built into the prices on the invoices, so they were overpaying and then kicking the money back. They helped register a separate business entity through which the kickbacks were called consulting or brokering.

Look, the guy is already an employee, the salesperson of the company, and he was saying that there's this brokerage company doing consulting for this transaction. That’s where the money came back in. The parties that were involved with this allegedly were the employees of these two companies that were skimming money off the top.

If you are an owner of a company or general manager, you have to look for these large transactions to see if there's any diversion of funds. If you see a management company or any vendors on your accounts payable on your P&L, you want to look at the principals of these companies. Are they your employees billing separately? Are they ghost companies billing separately?

Look up the address—is it a mailbox? Look up the principals and the members of this LLC. When was the LLC formed? These types of scams are very easy to detect. Normally, they are detected after the fact, when the money is missing and the company is struggling to figure out why they’re not staying in business.

However, they could have been detected ahead of time. All the records are there—it’s just a matter of putting too much trust in one person. Have cross-training, have two people do accounting, and have two people do payables. Make sure your accountant is forced to take a week off for vacation so someone else has to do their job.

Make sure other people look at all these records if you can’t yourself as a CEO. This is how you detect fraud and ensure that your company is not losing money. All these fraud cases that we investigate after the fact always show that they were easily detectable by the agency.