Here’s another really good example of how fraud can occur inside a company using ghost vendors, which we’ve talked about many times before, but this has a little bit different spin on it.
This is about a car dealership in Toms River, New Jersey, a great little Jersey shore town. And they had an employee who was a manager there with the job description of marketing and advertising and they were to hire outside marketing agencies to do work for the dealership. But the person was making up ghost companies. They made up limited liability partnerships and shell companies and billed the dealership for services for these companies. But in fact, these companies didn’t exist. Really, they were just entities that this person made up to bill the dealerships. He hid his connection to the companies by using an online payment service that allowed for the transfer of funds into accounts that he used for his personal accounts. According to the complaint allegedly, he billed them for $1.3 million.
This is a really good example of where when you’re in trusting somebody to spend money on your behalf as a company whether it’s an employee or a vendor you verify the place that the money’s going and that you maybe do some spot checks and audits on where the money’s going. Check the companies out. When you’re paying bills even check out invoices. Look to see if where you’re sending the money to is actually a legitimate company that provides you with goods or services. You can do a very quick secretary of state inquiry to that corporation to see who are the principals and who were the registered agents and what’s the address. Sometimes a rogue employee will create a corporation that sounds like a company you really do business with. Let’s say you buy paint from Vanguard paint company. There’s a legitimate vendor to your firm. A rogue employee might make up a company called Vanguard coatings or Vanguard painting, or something similar. And they’ll create invoices to that company, and put them in with the other ones in, the regular payments. Because they figure that the bookkeeper accountant controller whoever is going to recognize it as a legitimate vendor.
So think if you were this Tom’s River car dealer and you had an extra $1.3 million in your bank account. What could you have done with that? In fact, we worked on a case where the losses that a client took were about $800,000 from fraud. Forensics on that money showed that had that money been properly kept in the company would have been really worth $1.4 million because it was over four years and the company had a certain profit margin based on their return on investment. And if they had had that $800,000 to hire more employees to do more advertising, they would have made another %600,000 over that period of time. And that’s not much over four years, really. That’s about $140,000 a year. That’s less than 20%. Most companies make a 20% return on their investment. So if this 1.3 million had been kept within the company, it might be worth 1.6, 1.7, or 1.8 who knows how long this took? So you’re not just losing the money, you’re losing your return on investment. So it’s a very good reason to protect your assets. Do good audits and do good spot checks. And trust your employees but verify what they’re doing to make sure you’re not being taken to the cleaners.
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