Vendor Fraud schemes have been the longest running (and costliest!) trend in employee theft.  All businesses are at risk given that all businesses have vendors. These schemes can include billing fraud, ghost vendor payments, and kickbacks.  Fraudsters seize opportunities to facilitate their schemes when there are weaknesses in a Company’s internal controls.  These types of losses can be mitigated by implementing certain controls.

Internal controls that can help mitigate the risk:  

• Establish an authorized master vendor list of thoroughly vetted and approved vendors. Update and maintain the vendor list and purge the list annually to eliminate vendors with whom your Company no longer does business.
• Employees who are responsible to perform background checks on vendors should not also be authorized to add new vendors or be tasked with maintaining and purging the master list. The maintaining of segregation of duties is vital.
• Any new vendors should be required to provide appropriate documentation, and multiple employees should review and sign off on any new vendor approvals.
• Implement formal payment review by management or an internal audit department and maintain records to support invoice payments and account reconciliations.
• Perform vendor background checks to include W9 and face-to-face interviews in order to determine ownership and financial capability prior to doing business with the vendor.

Provide all vendors with the Company’s conflict of interest policy. 

• Gifts from vendors should be prohibited.
• Know your vendor. Be familiar and have open communications with your vendors.
• Formal procedures should be established for all wire transfers including identifying employees who are authorized to make transfers with established thresholds that require the approval of multiple employees.

Perform background checks on all employees to include:

• Criminal background checks
• Prior employment checks
• Credit history checks