It’s important to have a process in place to review purchase orders and invoices. And it’s key to double-check that payments seem appropriate for the supplies you’re receiving.
One fraudster took advantage of his company’s lack of checks and balances to steal more than $20 million.
Elliot Kleinman, a former facility manager from Bel Air, MD, just pleaded guilty to a scheme where he received kickbacks in exchange for running a fraudulent billing scheme together with one of the company’s vendors.
Agreed to commit fraud
In a press release, the Dept. of Justice laid out how the scheme worked.
Along with another employee who helped him manage the facility, Kleinman was authorized to review invoices and issue payments to vendors for drums used to store manufacturing products.
One day, Kleinman made a deal with Anthony Urcioli, the owner and president of two drum companies that did business with the employer.
If Urcioli agreed to falsify his invoices and say that his companies sold more drums to the employer than they actually did, Kleinman and the other employee would split the leftover money after the employer paid the invoices.
Anatomy of invoice scheme
The three went to great lengths to conceal this scheme.
On a weekly basis, they’d discuss both the actual amount of drums the employer wanted and the number of fake drums Urcioli would charge for. Then, Urcioli would create invoices with both the real and fake drums. And they’d be sent to the employer’s headquarters for payment.
To show the participants how much kickback money they’d receive, Urcioli sent them a separate purchase order ticket with a breakdown of the actual drum orders and the fake ones. It also had a calculation of the kickbacks based on the fraudulent orders. Along with the order, Urcioli sent a check for the amount owed to Kleinman and his co-conspirator.
Kleinman asked for his checks to be payable to a company he created, EDK Management LTD. After depositing the checks in a commercial account, he’d withdraw the money and spend it on personal expenses. He’d also transfer funds to the account for his actual side business, a cigar shop.
In all, this scheme cost Kleinman’s employer over $20.3 million between January 2012 and January 2020. Kleinman received approximately $2.3 million in kickbacks. At sentencing, he faces up to 25 years in prison for his crimes.
Takeaway for Finance
This situation proves how essential it is for you to have a system to double-check invoices and payments. Be sure to not bypass it in any situation, no matter how much you trust the vendor.
Whether it’s having multiple people approve invoices before sending payments to vendors or implementing an automated system that flags suspicious payments or charges, it’s key to have safeguards in place to protect your business from similar fraud schemes.