Misty Carter, CFE, CIA
ACFE Research Specialist
If you were to ask business owners how many times they thought one of their vendors ”got one over” on them, the majority would probably say something like, “I trust my vendors. They would never steal from me. I have used them for years and never had any problems.” In a perfect world, that might be true, but unfortunately, we live in the real world and that is just not realistic. I mean, let’s face it — even with the best controls in place, you cannot eliminate vendor fraud. Consider the vendor fraud that occurred against one of the nation’s largest consumer electronics companies, Best Buy. This company, duped by several vendors, lost close to $42 million with the help of a company employee. This employee colluded with several vendors to defraud the company by approving fraudulent online bids. The vendors would bid low and then charge high after being awarded the contract. In fact, over the course of three years, one vendor submitted bids for $24 million in parts, but ended up charging the company $66 million. In exchange for his help in this scheme, the company employee was treated to lavish vacations, given envelopes full of money weekly or bi-weekly, and was even extended a $300,000 “loan” to help his father start a business. Sounds like the good life, right? Well, maybe until you are caught. And yes, this scheme finally caught up with them.
Many might ask how these vendors were able to steal so much money from this large, publicly traded company for so long before getting caught. According to the defendants (the vendors), it was the company’s fault. They blamed company executives for “turning a blind eye” and having weak internal controls. In other words, it was the company’s fault that they were defrauded. What do you think? Could this fraud have been detected earlier or even prevented if anti-fraud measures had been in place? Based on the outcome, it certainly appears that something was lacking. It’s too late to prevent this fraud, but fortunately for other business owners, the ACFE has a new self-study course to help management in its fraud prevention and detection efforts related to vendor fraud.
The new online self-study course, Auditing for Vendor Fraud, is a great “go-to” guide for anyone interested in learning about vendor fraud and how to conduct effective vendor audits. This course walks you through the process of preparing for and conducting vendor audits, both internally and externally. It offers guidance on what to include in right-to-audit clauses for vendor contracts and is designed to help you learn about various types of vendor fraud schemes and red flags to identify these schemes as you perform vendor audits.