Detecting Corporate Fraud: Essential Steps Every Business Owner Should Take

The same type of scam occurred, but with a slightly different twist. There was a case in Oregon where an employee and a vendor defrauded a grass seed company. Surprisingly, Oregon is a big state for grass seed farms, and there are large operations that sell grass seed all over the country. In this case, the employee allegedly created a relationship with a vendor to buy and sell grass seed but was also skimming from the operation on the side. This is how fraud can happen to a business owner.

To prevent this type of fraud, the two parties allegedly paid a per pound kickback for grass seed purchased by the other company, and the kickbacks were built into the prices on the invoices. They were overpaying and then kicking the money back. They registered a separate business entity through which the kickbacks were called consulting or brokering. The salesperson of the company, who was also an employee, said that this brokerage company was doing consulting for this transaction, and that’s where the money came back. The parties involved in this fraud were allegedly the employees of these two companies who were skimming money off the top.

Identifying and preventing fraud as a business owner

If you’re an owner or general manager of a company, it’s important to monitor large transactions for any diversion of funds. Check for management companies and vendors on your accounts payable list, and look into the principles of these companies to see if your employees are billing separately or if they are ghost companies. Verify their address and the formation date of their LLC. These types of scams are usually easy to detect before the fact. Still, they are often detected after the money is already missing and the company is struggling to stay in business.

To prevent fraud, it’s essential to avoid putting too much trust in one person. Implement cross-training so that at least two people handle accounting and payables. Ensure your accountant takes a week off for vacation, and someone else has to do their job. Ensure that other people review all the records, even if you can’t do it yourself as a CEO. This is how you can detect fraud and ensure your company is not losing money. After investigating fraud cases, we often find that they were easily detectable with proper monitoring.