Summer’s winding down. And while it’s not time for Halloween just yet, your A/P pros should still be on the lookout for ghost vendors.
Ghost vendors are illegitimate vendors that are entered into your A/P system for fraudulent purposes, typically to embezzle money from your company.
Unfortunately, this is one of the most common ways that fraud occurs internally. One recent case highlighted by the Dept. of Justice shows why you should be watching for this kind of fraud in Finance.
Used ghost vendor to steal from employer
Patrick Garrett of Indiana, a former sales specialist responsible for A/P and A/R at a local company, was recently sentenced to serve a year and four months in federal prison after pleading guilty to wire fraud, bank fraud and money laundering for embezzling over $87,000 from his employer.
He managed to conduct his scheme by submitting fake invoices into his company’s accounting system for services he claimed a ghost vendor he invented provided. He also used his access to his employer’s accounts to make fraudulent purchases for himself from Amazon and other retail outlets.
And the purchases were extravagant: They included a car, an iPad, five gas motorcycles, three electric scooters, two drones and a MacBook Pro.
To hide his fraud scheme, Garrett altered information in his company’s accounting system and entered false details about the purchases to make them seem legitimate.
All in all, this led to a costly mess for his company. And although Garrett was ordered to pay restitution for his crimes, that still adds up to money lost.
Telltale signs of vendor fraud
This shows why it’s critical to watch for unfamiliar vendors in your A/P or accounting system. It’s key to remind A/P to take a close look at existing vendors, as well. Often, fraudsters will use similar fake company names to vendors you already work with to avoid detection.
There are also other important red flags to watch for, such as if a vendor has the same address as an existing employee or if it uses the employee’s banking info to receive payments.
Or, as shown in this case, watch for a ghost vendor with the same name as an employee: Garrett’s fake company was called “Garrett Ventures.”