Episode Overview

• Most common type of internal company theft
• Easy opportunity for employees to exploit payment systems
• Involves creating fake vendors to divert company funds

What Are Ghost Vendors?

• Payments made to companies or vendors that don't actually exist
• Employee diverts these payments directly to themselves
• Triggered when employees see company checks and imagine that money going to them
• Any check with a dollar figure becomes tempting to fraudulent employees

How Ghost Vendor Schemes Work

• Employee observes internal payment flow processes
• Identifies who writes checks and who authorizes payments
• Exploits gaps in payment authorization controls
• Creates fake invoices or vendors to generate illegitimate payments

Common Vulnerabilities

• Salesperson can write purchase orders without proper oversight
• Accounting departments blindly follow purchase orders
• Companies accept employee word on payment amounts without verification
• Lack of invoice verification processes
• Insufficient cross-referencing controls

Types of Ghost Vendor Schemes

• Completely Fake Vendors: Non-existent companies created solely for fraud
• Similar Name Companies: Creating companies with names similar to legitimate vendors (e.g., "XYZ Paint Company" vs "XYZ Paint LLC")
• Inflated Invoices: Adding unauthorized items to legitimate invoices

Prevention Strategies

• Require all vendor checks to be mailed directly - no hand delivery
• Treat checks like cash at all times, even when in envelopes
• Ensure checks go directly from bookkeeping to USPS mail system
• Never allow employees to personally deliver checks to post office
• Match vendor addresses with payroll department records
• Flag any payments going to residential addresses
• Watch for payments to mailboxes, PO boxes, or UPS stores
• Implement proper invoice verification procedures

Red Flags to Monitor

• Employees requesting to hand-deliver payments
• Vendor addresses matching employee home addresses
• Payments going to non-business addresses
• Similar company names to existing vendors
• Invoices without proper verification

Professional Investigation Options

• Advanced detection methods available through corporate investigation services
• Professional investigators can implement sophisticated prevention systems

For more information on protecting your business from internal fraud, contact Active Intel Investigations.