Employees may commit fraud against their employers by getting the employer to improperly disburse funds. One way this could happen is through an improper check or electronic disbursement. Another way is through a shell company scheme, whereby the employee sets up a fake vendor which issues invoices to the company for products or services that are not actually provided to the company.
These types of billing schemes could be detected with some of the following techniques:
- Analyze disbursements, looking for many large round amounts, or amounts falling just below a threshold that requires additional approval for payment.
- Look for unusually large expenses, unexplained variances in expenses between years, or expenses that exceed budgeted amounts. Billing schemes may inflate expenses enough to cause one or all of these comparisons to yield questionable results.
- Examine the financial statements for variances in expenses that should track predictably with revenue. Cost of goods sold is a popular account in which to conceal theft via billing schemes because of the high level of activity in this account. If the account varies significantly from expected values when compared to revenue, however, this might indicate a billing scheme.
- Cross-check addresses of employees and vendors, looking for exact matches or close matches.
- Compare vendor addresses to mail drop address databases to check for businesses that may not have a legitimate location.