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03/25/2011 Meeting - Vendor Red Flags
 

03/25/2011 Meeting - Vendor Red Flags

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    03/25/2011 Meeting - Vendor Red Flags 03/25/2011 Meeting - Vendor Red Flags Presentation Transcript

    • Vendor Red Flags Presented by: Greg Taylor, CFE Vice President/CTO Corporate Audit Partners
    • Introduction Vendor Red Flags Incomplete W9 Duplicate Payments Incomplete Address Round Dollar Invoices Vendor/Employee Match Invoices Near Approval Levels Check Requests Cancelled or Return Checks Benford’s Law Rapid Dollar Increase Sequential Invoice Numbering High Volume of Activity Vendor/Employee Relationships Vendor Bidding Process Abbreviated Vendor Names Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Red Flags  Red Flags are identified as a set of circumstances that vary from normal practices.  Red Flags do not dictate guilt or innocence but are a warning to look closer.  Do not ignore Red Flags. Studies of fraud cases usually show that Red Flags were present but ignored.  Sometimes an error is just that; an error. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Incomplete W9 Finding  Incomplete W9 Concern  Pertinent information is not filled out on the W9  The lack of complete information on the W9 inhibits follow up of the vendor review process  Deliberate manipulation of W9 or Vendor Form  Tax ID numbers are the same as another vendor Process  Verify that all vendors have completed W9’s and Vendor forms have been reviewed and verified. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Incomplete Address Finding  Incomplete vendor address or PO Box or mail drop only address Concern  Incomplete vendor addresses missing street, city, state or zip  Foreign addresses won’t fit the accounting system form  Difficult to mail checks to vendors with missing addresses Process  Run vendor master missing address report  Key on missing street, city, state or zip  Run vendor address with PO Box only report  Run vendor address to mail drop matching report Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Incomplete Address Report VM Report VI Sample Company A VENDORS WITH MISSING ADDRESS FIELDS VENDOR NUMBER VENDOR NAME VENDO R TYPE ADDR 1 ADDR 2 CITY STAT E COUNT RY POSTAL CODE 0000017171 1st. Fighter Wing CCMSgt Fund 1 Langley AFB Langley VA USA 0000006918 7th AF/CCC Fund 1 Unit 2047 Apo Ap KOR 96278-2047 0000019407 89th SPTG Combat 1 Andrews Air Force Base Clinton MD USA 0000048888 A7SOFT.COM 1 81375, An Der Rehwiese, 10 Munich Germany DEU 0000003059 Adam Lowenstein 1 New Hyde Park Memorial High School New Hyde Park NY USA 0000015466 AIG Europe 1 Oberlindau 76-78 Attn: H. Jahnert Postafach 3866; D-6000 60323 Frankfurt, Germany DEU 0000030240 Aiken Office Solutions 2 3838 South Florida Avenue Lakeland FL USA 0000006757 Alea Group Inc 1 60 Granton Drive #122 L4B2N6 Richmond Hill, Ontario ON CAN 0000036010 All Palm Beach Safe & Safe & Lock, Inc. 1 8575 Hall Blvd. Loxahatchee FL USA 0000029272 Alpine Glass Inc. & Charles J. Lloyd, 1 4200 IDS Center 80 South Street Minneapolis MN USA 0000031456 B.K.V. Enterprises Ltd. 1 Box 850 613 Hywy 16 & Govern Burns Lake AB CAN 0000022752 Balboa Municipal Golf Course 1 san Diego CA USA 0000007330 BJ's Wholesale Club 2 3985 Plank Rd. Fredericksburg VA USA 0000006252 Blair Lee & American University 1 Washington DC USA Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Vendor/Employee Match Finding  Vendor and employee located at the same address Concern  Employee and vendor are the same  Collusion between employee and the vendor  Employee approving vendor invoices Process  Run vendor/employee match report  Key on stripped address  Verify reasons for vendor at employee address  Sometimes the reason is the employee was once a vendor Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Vendor/Employee Match Report Address Match Employee ID Vendor Number Vendor Name Address 1 Address 2 City State Postal Code 614153317 DOUBLETREE HOTEL SAN JOSE 1050 GATEWAY PLACE SAN JOSE CA 95110 0000000845 Plotter Pros 1086 The Alameda Suite 100 San Jose CA 95116 C11145617 RECOMMENDED RESOURCES 11 AMHERST ROAD AMHERST MA 1001 C11145617 RECOMMENDED RESOURCES (INACTIVE) 11 AMHERST ROAD AMHERST MA 1001 MATCH 009985 1336 Hill San Marcos TX 78022 MATCH 917150807 S M DESIGNES 1336 HILL St SAN MARCOS TX 78022 711131708 RT CONSTRUCTION 13455 NOEL RD SUITE 430 DALLAS TX 75140 615094134 RYDER TRANSPORTATION SERVICES 1481 O'TOOLE AVENUE SAN JOSE CA 95131 617143713 MONARCH INSTRUMENT 15 COLUMBIA DRIVE AMHERST NH 03031-1334 616094959 MASON WEST INCORPORATED 1840 GRETTO LANE ANAHEIM CA 91806 517160003 ADVANCED SYSTEM SOLUTIONS 3115 PERIVALE CT SAN JOSE CA 95148 831 Ev ent Connections 3657 El Grande Driv e San Jose CA 95131 110 MURAD SALES INCORPORATED 4600 GREENVILLE AVE SU DALLAS TX 75106 MATCH 731143218 G Consulting 5506 CHIMNEY RCK DR IRVING TX 76017 MATCH 009511 5506 Chimney Rock Driv e IRVING TX 76017 111 JUNIOR NATIONAL WHEELCHAIR CHAMPIONSHIPS 5730 CHAMBERLIN DRIVE SAN JOSE CA 95118 0000000510 HANSON PUBLICATIONS 64 CLIFTON AVENUE PO B AN SONIA CT 06401-0514 MATCH 008701 6610 Manzanita Dr. San Marcos TX 78027 MATCH A28135104 JS GRAPHICS 6610 MANZANITA DRIVE SAN MARCOS TX 78027 0000000701 INTERNET ASSOCIATION GROUP, INC. 6610 SOUTHPOINT DRIVE SUITE 600 JACKSONVILLE FL 31116 MATCH 007901 6701 row Way Laconia CA 05842 MATCH 624135327 DYGNETS 6701 ROW WAY LACONIA NH 05842 811 BLACKSTONE - NEY 9 N. MAIN ST JAMESTOWN NY 14701 817111810 CAE ULTRACSONICS 9 NORTH MAIN STREET JAMESTOWN NY 14701-0110 101090844 LAB SAFETY SUPPLY INCORPORATED DEPT #0000185191 PO BOX 5004 JANESVILLE WI 53547-5004 909111811 SPECIALIZED PRODUCTS COMPANY PO BOX 890006 DALLAS TX 75389-0006 101090036 LAIRD PLASTICS PO BOX 951111 DALLAS TX 75395 516165940 RW/STEARNS RIVER PARK TOWER 333 W. SAN CARLOS SSAN JOSE CA 95110-1711 515091707 IEEE VLSI TEST SYMPOSIUM VLSI Test Sy mposium 1001 Attn: Maddie Harw ood Amissv ille VA 10106 Client: xyz Company - Report VI Employee Address / Vendors Address Comparison Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Check Request Finding  Vendor has numerous check request or special check handling request Concern  Checks are hand delivered by an employee  Outside of normal payment processes and procedures  Lack of documentation such as invoice, bill of lading, etc Process  Review all check requests for special handling  Understand the reasons behind the check request Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Benford’s Law Benford’s Law  Invoice data has particular sequences which are always followed  Anomalies show up when same numbers are used multiple times  The number 1 should show up 30% of the time, the number 2 should show up 17% of the time. The number 9 should only show up 4.5% of the time Concern  Fraudsters using the same number or similar numbers over and over again Process  Run benford’s law on all invoice data to look for anomalies  Research anomalies Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Benford’s Law Graph 1 2 3 4 5 6 7 8 9 MFG 1 0.301980 0.173300 0.122330 0.091430 0.082010 0.066050 0.057500 0.054620 0.050770 MFG 2 0.310863 0.173561 0.131462 0.086964 0.080502 0.064560 0.055869 0.049351 0.046868 MFG 3 0.303399 0.171330 0.125069 0.098053 0.085215 0.065212 0.055819 0.050058 0.045845 Benford 0.301030 0.176091 0.124939 0.096910 0.079181 0.066947 0.057992 0.051153 0.045758 min 0.300000 0.166000 0.113000 0.087000 0.069000 0.057000 0.048000 0.041000 0.036000 max 0.320000 0.186000 0.133000 0.107000 0.089000 0.077000 0.068000 0.061000 0.056000 0.000000 0.050000 0.100000 0.150000 0.200000 0.250000 0.300000 MFG 1 MFG 2 MFG 3 Benford min max Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Sequential Invoice Numbering Finding  Vendor invoices are sequential. Concern  Fraudster is using consecutive invoice numbering on fraudulent invoices  Fraudster may be making copies of the same invoice and changing the invoice number  May be a single source vendor Process  Create invoice number test by sequential invoice numbering Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Sequential Invoice Numbering ID Invoice Number Invoice Date Invoice Amount PO ID Vendor Number Vendor Name Address 1 Address 2 City State Postal Code Check Number Check Date 31104 126012607 12/06/03 $11,615.49 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31105 126012608 12/07/03 $154.69 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31106 126012609 12/07/03 $24,012.94 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31107 126012610 12/07/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31108 126012611 12/05/03 $45,563.01 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31109 126012612 12/05/03 $153.93 6602 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311532 01/17/04 31139 126015480 01/16/04 $5,233.59 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31140 126015481 01/16/04 $769.65 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31141 126015482 01/16/04 $3,540.37 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31142 126015483 01/16/04 $1,693.22 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31143 126015484 01/16/04 $3,386.44 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31144 126015485 01/16/04 $593.82 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31145 126015486 01/16/04 $928.17 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31146 126015487 01/16/04 $618.78 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 31147 126015488 01/16/04 $8,662.90 420101954 CELESTIC SEASONING 2121 QUMEN DRIVE SAN MARCTX 72315 3311642 02/22/04 75541 507600 06/29/03 $2,861.43 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75542 507601 06/29/03 $504.60 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75543 507602 06/29/03 $963.09 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75544 507603 06/29/03 $456.75 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75545 507604 06/29/03 $124.41 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75546 507605 06/29/03 $287.10 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75547 507606 06/29/03 $12.92 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 75548 507607 06/29/03 $30.45 415082120 MORRIS, MORTON, HOWE 137 METEOR BLVD. SUITE 700 SAN JOSE CA 95110 3312624 08/08/03 82364 602104/0100 01/01/03 $3,384.17 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82365 602104/0200 02/01/03 $3,178.06 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82366 602104/0300 03/01/03 $2,670.82 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82367 602104/0400 04/01/03 $3,404.77 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305826 04/03/03 82368 602104/0500 05/01/03 $3,184.09 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82369 602104/0600 06/01/03 $3,053.95 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82370 602104/0700 07/01/03 $2,996.78 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305836 07/03/03 82371 602104/0800 08/01/03 $3,498.83 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/03 82372 602104/0900 09/01/03 $3,350.58 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305842 09/03/03 82373 602104/1000 10/01/03 $1,986.51 L213709B 119163000 CORPORATE TRANSPORTATION INC FILE 66970 PO BOX 22100 SAN FRANCA 94144-4758 3305856 12/03/03 Client: xyz Company - Report XII Vendors / Consecutive Invoice Numbering Prepared by: Corporate Audit Partners Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Vendor/Employee Relationships Finding  Unusual relationship seems to exist between employee and vendor. Particularly upper level management or purchasing Concern  Employee is colluding with vendor for preferential treatment, kickbacks, bid rigging, etc. Process  Observe vendor employee relationships  Create “conflict of interest” agreements for employees  Verify that there is a clear understanding of employee vendor relationships  Review suspect vendors for bid rigging etc.  Cross training Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Abbreviated Vendor Names Finding  Vendor name is an abbreviation Concern  False vendors may be set up as abbreviations of employee names or other names  ie. ABC Inc., D&G corp.  Abbreviation may be similar to actual vendor (ABC Inc. vs. AB&C Inc) Process  Internal audit should review new vendors on a regular basis and pay particular attention to vendors with abbreviated names  Create new vendor spend report and review abbreviated names Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Duplicate Payments Finding  Duplicate payments are being made to vendors Concern  Employ is asking for refund on forced duplicate payment  Employee is colluding with vendor and receiving kickbacks Process  Create duplicate payment reports  Remember an error may just be an error  Verify that money was returned to company  Use a variety of duplicate payment reports Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Duplicate Payments Business Unit Vendor Invoice Amount Invoice Number Invoice Date Different Same Same Same Same Same Different Same Same Same Same Same Different Same Same Same Same Same Different Same Same Same Same Same Different These are some of the duplicate reports that have been successful for Corporate Audit Partners There are a number of variations on the reports such as “Soundex” and “fuzzy matches” or “less than number of days” Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Round Dollar Invoices Finding  Vendor has many round dollar invoices Concern  Fraudsters are creatures of habit and use even numbers and round dollar numbering on invoices Process  Create round number invoice report  Use “MOD” function  Review vendors with the highest percentage of round numbers Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Round Dollar Invoices MOD Function MOD Function Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Invoices Near Approval Levels Finding  Vendor has many invoices just under approval levels Concern  Fraudsters are making fictitious invoices just under approval levels to circumvent the approval process  Invoice splitting to circumvent approval process Process  Create approval amount report  Create invoice splitting report  Review vendors with the highest percentage of invoices close to approval levels Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Invoices Near Approval Levels Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Invoice Splits Query In (SELECT [VendorName] FROM [dbo_Invoice] As Tmp GROUP BY [VendorName],[InvoiceDate] HAVING Count(*)>1 And [InvoiceDate] = [dbo_Invoice].[InvoiceDate])  This is the Microsoft Access Query for invoice splits  Where the vendor name is the same and the invoice date is the same Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Invoice Splits Query Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Cancelled or Returned Check Finding  Vendor has a large number of cancelled or returned checks Concern  Fraudsters may create a return check situation and then modify the already signed check.  There may be an issue with the vendor Process  Create a vendors with the highest amount of returned checks per spend report  Use criteria to exclude most normal cancellations Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Rapid Dollar Increase/High Volume Finding  Vendor has very rapid dollar increases in spend over time period Concern  Fraudsters may be colluding with vendor to create fictitious invoices  Vendor is circumventing the approval process Process  Create vendor histogram or vendor scattergraph report  Search by vendors with more than 10 transactions and greater than $10,000 per year spend  Use 300% and greater increase in spend to further isolate suspect vendors Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Rapid Dollar Increase/High Volume Histogram  The histogram is a per vendor comparison on dollar volume and number of transactions over a given period (normally one year) Vendor Number Vendor Name Invoices 2006 Invoices 2005 Transa ctions 2006 Transa ctions 2005 Inv Amt Diff Inv Cou nt Diff Percent Change Dollars Percent Change Transact ions Quadr ant 0000036202 101 Communications $8,962.00 $30,681.25 2 6 ($21,719.25) (4) -70.79% -66.67% 0000038093 22nd District Agricultural Association $11,000.00 $11,000.00 1 1 $0.00 0 0.00% 0.00% 0000033059 24 Outdoor Com $13,990.00 $14,660.00 11 13 ($670.00) (2) -4.57% -15.38% 0000000375 360 Youth $275,593.74 $446,557.65 24 69 ($170,963.91) (45) -38.28% -65.22% 0000000375 360 Youth, LLC $275,593.74 $300,020.41 24 7 ($24,426.67) 17 -8.14% 242.86% 0000030601 4000 Sherwood Office Associates, L.P. $34,767.88 $57,410.06 10 16 ($22,642.18) (6) -39.44% -37.50% 0000008190 4103 Chain Bridge Road $104,564.62 $83,012.40 16 13 $21,552.22 3 25.96% 23.08% 0000040622 4th Services Squadron $2,000.00 $2,000.00 1 1 $0.00 0 0.00% 0.00% 0000040093 500 Clearlake Plaza $61,955.42 $33,507.84 16 10 $28,447.58 6 84.90% 60.00% Amount and Count are the same Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Rapid Dollar Increase/High Volume Scattergraph  The scattergraph is a graphical analysis of changes in vendor spend and transactions between two periods of equal length -1000 -800 -600 -400 -200 0 200 400 600 800 1000 ($25,000,000.00)($15,000,000.00) ($5,000,000.00) $5,000,000.00 $15,000,000.00 $25,000,000.00 I 3 3 1 1 244 2 1 1 1 High dollar change and low count 2 Dollar to count changes that DON'T contradict one another 3 Dollar to count change that contradict one another 4 Inefficiency that may be developing 4 4 Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Procurement Fraud Finding  Vendors and/or employees are colluding to commit fraud Concern  Procurement fraud is one of the hardest to detect.  In many ways it is committed before accounting books cost  Payments or other compensation is made off books  Company may be overpaying for goods or services Types of Procurement Fraud  Bribes and kickbacks  Bid rigging among vendors  Collusion between vendor and employee  False Claims Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Procurement Fraud (cont.) Types of Procurement Fraud  False Claims  Performance schemes (material substitution) Process  Set up “tip line”  Compare vendor bidding  Review vendor bid winning percentage (are they a sole source vendor)  Do procurement employees have unusual relationships with vendors or potential vendors  Review change orders  Review final costs (were they over budget) Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction How do I get the data out so I can analyze it? Accounting Systems  Most common accounting systems QuickBooks, Great Plains, Oracle, SAP, etc have programs to extract data sets as text files  “Business Objects” and “Qubed” are some third party software used for extraction.  IT staff can typically extract data into text form  DO NOT USE .cvs file or comma delimited options when extracting  CAP uses proprietary table identifiers. Clients export tables as text files. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction What does Extracted data look like? Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction Imported to Excel – Text Import Wizard Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction Imported to Excel – Text Import Wizard Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction Imported to Excel – Text Import Wizard Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Vendor Red Flags Data Extraction Imported to Excel – Finished Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Case Study  Case Study 1  Jewelry Company  $1.5 Billion in Annual Sales  Anderson, SC  Vendor Red Flag •Number Duplication Report. •High Dollar Volume. •Sequential Invoicing. •Invoices per Month. •Google Earth. •Phone number and Contact. •Common industry practices. •Demographics. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Number Duplication Report Duplicated Number Count of Duplicated Number Vendor Nmber Vendor Name Total of Duplicated Number $20.00 94 11853 SOUTH CAROLINA DEPT OF REVENUE $1,880.00 $20.00 80 360445 SC CHILD SUPPORT CENTRALIZED COLLECTIO $1,600.00 $20.00 22 33223 STATE OF CALIFORNIA FRANCHISE $440.00 $20.00 21 359586 UNITED STATES TREASURY $420.00 $20.00 8 368331 ARCTIC FALLS $160.00 $20.00 7 35953 FEDERAL EXPRESS $140.00 $20.00 6 80982 OXFORD $120.00 $23.08 207 360445 SC CHILD SUPPORT CENTRALIZED COLLECTIO $4,777.56 $23.08 154 365055 COUNTY CLERK OF SUPERIOR COURT $3,554.32 $23.08 39 61424 CHAPTER 13 OFFICE $900.12 $24.00 156 365325 CONNECTICUT CC $3,744.00 $24.00 141 360445 SC CHILD SUPPORT CENTRALIZED COLLECTIO $3,384.00 $24.00 19 366393 SHOREWOOD $456.00 $24.00 16 368974 COFFEE SERVICE INC $384.00 $25.00 181 359586 UNITED STATES TREASURY $4,525.00 $25.00 57 243643972 JP WELDING SERVICE $1,425.00 $25.00 30 2717 GE CAPITAL $750.00 $25.00 25 13203 NEW JERSEY MOTOR VEHICLE COMISSION $625.00 $25.00 19 63277 CHAPTER 13 TRUSTEE $475.00 $25.00 7 371257 GE FLEET SERVICES $175.00 $25.00 7 13828 WORM KIE GALE & JAC $175.00 $25.00 6 368974 COFFEE SERVICE INC $150.00 $25.00 5 5809 ANALYTICAL LAB INC $125.00 $30.00 66 360445 SC CHILD SUPPORT CENTRALIZED COLLECTIO $1,980.00 $30.00 5 366958 BDP INC $150.00 $30.00 5 359968 IMPACT INC $150.00 $35.00 5 360955 WOOD BP $175.00 $40.00 137 362975 ADMINISTRATOR $5,480.00 $40.00 16 359402 CINTAS $640.00 $40.00 9 360955 WOOD BP $360.00 $40.00 7 44746 ROADRUNNER $280.00 $45.00 14 39547 BUSINESS WIRE $630.00 $45.00 8 360955 WOOD BP $360.00 $45.00 7 365555 DJ ASSOC $315.00 $50.00 139 243643972 JP WELDING SERVICE $6,950.00 Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Number Duplication (cont.) Client - Number Duplication - Report X Years 2005 - 2007 Top 20 Duplicated Numbers by Vendor Duplicated Number Count of Duplicated Number Vendor Nmber Vendor Name Total of Duplicated Number $25.00 57 243643972 JP WELDING SERVICE $1,425.00 $50.00 139 243643972 JP WELDING SERVICE $6,950.00 $75.00 114 243643972 JP WELDING SERVICE $8,550.00 $100.00 107 243643972 JP WELDING SERVICE $10,700.00 $150.00 111 243643972 JP WELDING SERVICE $16,650.00 $200.00 79 243643972 JP WELDING SERVICE $15,800.00 $300.00 70 243643972 JP WELDING SERVICE $21,000.00 11_RPT_X_NUMBER_DUP_2.xls Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • High Dollar Volume  Why is High Dollar Volume Important?  JP Welding Stats  $709,190.86 over three years  1,443 invoices submitted over three years  $491.47 average invoice amount What can we learn from these statistics? Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Sequential Number Invoices Association of Certified Fraud Examiners 2004 Report to the Nation on Occupational Fraud and Abuse 348587 ANDERSON, SC JP WELDING SERVICE 5694 04/04/05 06/01/05 $200.00 $0.00 4085.07 86022-41--MOVE ITEMS FOR TERESA WIGGINS CHECK 225113 06/02/05 $4,085.07 348587 ANDERSON, SC JP WELDING SERVICE 5695 04/04/05 05/02/05 $315.00 $0.00 7991 86022-41--MOVE SINK--S REECE CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5696 04/04/05 05/02/05 $160.00 $0.00 7991 86022-41--CRATE PALLET --SHAWN NUTTER CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5697 04/04/05 05/02/05 $1,265.00 $0.00 7991 86022-41--WORK ON ELEVATOR CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5698 04/04/05 05/02/05 $25.00 $0.00 7991 86022-41--HANG POUCHES--ART WRIGHT CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5699 04/04/05 05/02/05 $25.00 $0.00 7991 86022-41--WORK IN WAREHOUSE--BILLY WIGGINS CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5702 04/04/05 05/02/05 $75.00 $0.00 7991 86022-41--MOVE MOTORS--S REECE CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5703 04/04/05 05/02/05 $175.00 $0.00 7991 86022-41--MOVE LOCKERS--DAMION MITSOCK CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5704 04/04/05 05/02/05 $50.00 $0.00 7991 86022-41--MOUNT SIGNS--S REECE CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5705 04/04/05 05/04/05 $506.00 $0.00 7991 86022-41--INSTALL TOOL BOARDS--WILLIAM MURPHY CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5706 04/25/05 05/04/05 $1,250.00 $0.00 7991 86022-41--ADDITIONAL TOOL BOARDS--WILLIAM MURPHY CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5707 04/11/05 05/04/05 $100.00 $0.00 7991 86022-41--COLOUM HIT BY FORKLIFT--HARVEY HENDRICKSON CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5708 04/11/05 05/06/05 $841.19 $0.00 5491.69 86022-41--MOVE STRETCH WRAPPER--JERRY JACKSON CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5709 04/11/05 05/06/05 $500.00 $0.00 5491.69 86022-41--MOVE PIPING--JERRY JACKSON CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5710 04/11/05 05/05/05 $337.50 $0.00 5491.69 86022-41--SANTIZING ROOM STEWART REECE CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5711 04/11/05 05/04/05 $260.00 $0.00 7991 86022-41--KART --CLARENCE ROYSTER CHECK 221910 05/05/05 $7,991.00 348587 ANDERSON, SC JP WELDING SERVICE 5713 04/11/05 05/05/05 $538.00 $0.00 5491.69 86022-41--RUN WATER PIPE--DAMION MITSOCK CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5714 04/18/05 05/06/05 $207.50 $0.00 5491.69 86022-41--LINE 3515 ALEX HENZEL CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5715 04/18/05 05/06/05 $225.00 $0.00 5491.69 86022-41--DOOR JAMB--JIM RUSH CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5716 04/18/05 05/06/05 $100.00 $0.00 5491.69 86022-41--WELD SAFETY BAR--MIKE SPARKS CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5717 04/18/05 05/06/05 $150.00 $0.00 5491.69 86022-41--POWDER ROOM CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5718 04/18/05 05/06/05 $50.00 $0.00 5491.69 86022-41--PATCH HOLES--DENNIS CLAYBOURN CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5719 04/18/05 05/06/05 $375.00 $0.00 5491.69 86022-41--POWDER ROOM CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5720 04/18/05 05/06/05 $37.50 $0.00 5491.69 86022-41--FILL CRACK HOLE--DENNIS CLAYBOURN CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5721 04/18/05 05/06/05 $50.00 $0.00 5491.69 86022-41--PAINT COLUMN--JOHN COGHILL CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5722 04/18/05 05/06/05 $250.00 $0.00 5491.69 86022-41--MAIN CONFERENCE ROOM--SANDY HICKS CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5723 04/18/05 05/06/05 $50.00 $0.00 5491.69 86022-41--CONFERENCE ROOM--ROSE BOYD CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5724 04/18/05 05/06/05 $200.00 $0.00 5491.69 86022-41--WELD REPAIR BEAUTY CARE ASILE--HARVEY HENDRICKSON CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5725 04/18/05 05/25/05 $100.00 $0.00 2840 86022-41--CLEAN UP A FRAME--JERRY JACKSON CHECK 224302 05/26/05 $2,840.00 348587 ANDERSON, SC JP WELDING SERVICE 5726 04/18/05 05/10/05 $125.00 $0.00 5491.69 86022-41--R-16 DOOR--CLARENCE ROYSTER CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5727 04/18/05 05/06/05 $100.00 $0.00 5491.69 86022-41--WELD SINK LEGS--STEWART REECE CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5728 04/18/05 05/06/05 $250.00 $0.00 5491.69 86022-41---ASSEMBLE FILE HANGERS--JANET POWELL CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5729 04/18/05 05/06/05 $50.00 $0.00 5491.69 86022-41--BALLARD--DENNIS CLAYBOURNE CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5730 04/18/05 05/06/05 $25.00 $0.00 5491.69 86022-41--ANCHOR BALLARD BACK--BRENDA KOSHADA CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5731 04/18/05 05/06/05 $25.00 $0.00 5491.69 86022-41--BALLARD--JIM BRAZIL CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5732 04/18/05 05/06/05 $37.50 $0.00 5491.69 86022-41--ANCHOR BALLARD--HARVEY HENDERICKSON CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5733 04/18/05 05/06/05 $487.50 $0.00 5491.69 86022-41--CLEAN TRASH ITEMS--STEWART REECE CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5734 04/18/05 05/06/05 $160.00 $0.00 5491.69 86022-41--1425 AREA--ANDY CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5735 04/18/05 05/06/05 $320.00 $0.00 5491.69 86022-41--CONSTRUCT BALLARDS--MILES GOTO CHECK 222678 05/12/05 $5,491.69 348587 ANDERSON, SC JP WELDING SERVICE 5737 04/25/05 05/20/05 $865.00 $0.00 2840 86022-41--RUN WATER LINE--S REECE CHECK 224302 05/26/05 $2,840.00 Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Invoices Per Month  1,433 invoices submitted over three years  How many working days or hours are they in a given year?  One person working, two people working? Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • GoogleEarth  Map Streetview or Satellite JP WELD Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Phone Number and Contact Vendor Search  Sites  www.hoovers.com  www.manta.com  http://www.archive.org/web/web.php Wayback Machine  Review vendor name on Search Engines  Review principles names on search engines  Review vendor website on waybackmachine.  Review IP address on whois. http://whois.domaintools.com/ to look for owner of account. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Common Industry Practices  Does the vendor fit common industry practices?  Did it seem normal to hire an outside welder to do maintenance?  What business is client in?  Pros and Cons?  Cost Savings? Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Demographics Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Demographics Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Conclusion  Invest in a tip line.  Simple tests to identify suspect vendors.  Search vendor history  Does it make sense?  What is the make up of the community?  Smell test.  Finding vendor fraud is as much and art as a science. Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675
    • Reference Material Mark J. Nigrini Ph.D. / Saint Michael's College / http://www.nigrini.com/ Dept of Business and Acctg - Campus box 104 One Winooski Park / Colchester Vermont 05439 Tel: (802) 654-2894 (Saint Michael's office) Association of Certified Fraud Examiners Inc. / www.CFEnet.com The Gregor Building 716 West Avenue / Austin, TX 78701-2727 Tel: (800) 245-3321 Corporate Audit Partners Advanced Software Solutions Phone: 949.488.7648 Ext 829 Email: gtaylor@corporateaudits.com Web: www.corporateaudits.com LinkedIn http://www.linkedin.com/in/gregtaylorcfe Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano, CA 92675