The Expert Podcast

The same type of scam with a little bit of a 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, with very large operations that sell grass seed all over the country. What happened here was that an employee in this company allegedly created a relationship with a vendor to buy and sell grass seed, but they were skimming from the operation.

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 labeled as consulting or brokering. The employee, who was already a salesperson for the company, claimed that a brokerage company was providing consulting for these transactions. That’s where the money came back in.

The parties involved in this alleged scam were employees of the two companies, skimming money off the top. If you are an owner or general manager of a company, you have to look for these large transactions to detect any diversion of funds. For example, check if a management company or any vendors on your accounts payable or profit-and-loss statement are suspicious. Investigate the principals of these companies to see if they are your employees billing separately or ghost companies. Look up the addresses—are they just mailboxes? Check when the LLC was formed.

All these types of scams are very easy to detect. Normally, they are only discovered after the fact when the money is missing and the company is wondering why they’re not staying in business. However, they could always have been detected ahead of time. All the records are there—it’s just a matter of not putting too much trust in one person.

To prevent such frauds, have cross-training so two people handle accounting and payables. Force your accountant to take a week off for vacation so someone else has to do their job. Make sure others review all the records if you can’t do it yourself as a CEO. This is how you detect fraud and ensure your company isn’t losing money. In all these fraud cases we investigate after the fact, we always find that the scams were easily detectable by the agency.