The Expert Podcast

This is David, Active Intel Investigations. Today we're going to talk about ghost vendors. This is the most common type of theft within a company. It's very easy for an internal employee to see this opportunity anytime you have checks going out for payables or checks going out to buy materials. These checks with a dollar figure on them is something that an employee sees and they imagine that money going to them. So if you have any person that has any level of maybe temptation to steal from you, they see these checks as a way to do it.

You pay a check to Office Depot for a batch of furniture, you pay a check to XYZ printing for business cards. They see a check with money on it, they imagine that check going to them. A check with a dollar on it looks like a cash pile to any fraudulent type of employee. The ability to generate the payment is observed - who wrote the check, who authorized the check being printed. Once they see that internal flow, they're going to look at ways to steal that. In most cases it's going to be a ghost vendor. It's a payment to a company or a vendor that does not exist and then they divert that payment to themselves.
Who has cross references to control a payment being issued? If a salesman can write a purchase order and then accounting will just blindly follow it, that's a hole in the boat where water can come in. Do you take the word of an employee for the amount of a payment? For example, if you're buying furniture from Office Depot, do you take the word of the employee of how much it is without getting an actual invoice? Do you verify the invoice? If you have an invoice from Office Depot for eight thousand two hundred dollars, is that invoice just for the furniture or is it for furniture and a big-screen TV for the employee? Who would know that the invoice is fake? Who would know if that invoice is being used to generate a check?

The other type of ghost vendor scheme is a similar name company. If you have a provider that gives you products that you pay checks to all the time, let's say XYZ Paint Company, what if an employee created XYZ Paint LLC - similar company - and diverted some of the checks to themselves or made invoices come in that look legitimate? Because you know your bookkeeping sees this company all the time, of course they think it's going to be legitimate payable activity.

Require that all checks that go out to vendors be mailed. Do not hand deliver any. Hand delivering gives the salesperson or bookkeeper whoever the opportunity to divert that check into their own control. Make sure that any instruments like checks are treated like cash, even if they're in an envelope. Even if you print one, put an envelope, make sure those envelopes go right from bookkeeping into the USPS mail system - not into somebody's hand to bring it to the post office because they can just pull out the checks that they want.

Match the addresses that you send your payables to to your payroll department because if somebody's stealing money, sometimes they're too stupid to change the address and they'll just have the check mail to their home address thinking no one's going to look at it. And then look to see if any of the addresses are mail boxes or PO boxes or UPS Store or some place they can get checks. These are some simple ways to prevent ghost vendors from draining money from your company. And some of the more advanced methods that you can look at to prevent it or to detect it can be done by a professional corporate investigation.