Tips to Identify and Mitigate Vendor Fraud

During National Fraud Week, the third week of November, EisnerAmper takes a look at several types of common business-related fraud and offers preventative tips. 

Vendor fraud consists of schemes in which a company’s accounts payable and other payment systems are manipulated for illegal personal gain. Common vendor fraud schemes fall into three categories:

• Billing Schemes – This is where an employee creates false documentation to manipulate a company’s billing system to generate a false payment for his or her own benefit. 
• Check Tampering Schemes – An employee physically manipulates checks so that they can be deposited into a bank account under his/her control. These generally involve forgery, altering payee information, or issuing inappropriate manual checks.
• Bribery/Extortion – An employee receives or demands inappropriate personal payments from a vendor for which the vendor gains a sale or some other financial advantage. 

There are things an organization can do both to prevent occurrences of vendor fraud and mitigate the impact if and when fraud is discovered. Here are several: 

• Employ thorough due diligence in the vendor set-up process.
• Create systems and controls for the segregation of duties.
• Have a clear written system of policies and procedures for those in the vendor set-up and payment process.
• Use and leverage data mining techniques from current control systems. 

It may be challenging to eliminate all instances of vendor fraud at an organization. But with the proper procedures, training and awareness, you can significantly mitigate its impact. 

This article is part of EisnerAmper’s Fraud Week Series. For more information on fraud awareness week, visit https://www.eisneramper.com/fraud-awareness

Fraud Week Insights