Ghost Vendors: The Most Common Type Of Internal Corporate Fraud

Ghost vendor fraud is the most common type of internal corporate fraud that occurs. A ghost vendor is a payment to a company or vendor that does not exist. When you run reports on your payments and vendors, everything looks legitimate. However, the money is then diverted back to the perpetrator(s).

When employees create ghost vendors, they do it for a reason. It’s often an employee with access to the company’s bank accounts or payable accounts.

The employee could be doing it for personal gains, such as using the company’s money to pay off their own debts. Or, if the company is struggling financially, employees may be trying to hide that fact from upper management so they can keep their jobs.

Ghost vendor examples

Employees may create ghost vendors so that they can purchase items for personal use using a company credit card. For example, an employee might have a personal credit card with a $10,000 limit and want to make sure that they don’t exceed the limit. Therefore, if the employee wants to make a $12,000 purchase, he or she may set up multiple ghost accounts that total $12,000 and then purchase items from each account until the total reaches $12,000.

An employee may create a ghost vendor with a name that looks similar to a legitimate vendor. This could cause confusion when looking at reports because it appears as though there is more activity than there actually is. This could also cause an auditor’s report to come back with findings that do not match what actually occurred in your accounting system.

How can you prevent ghost vendors?

You can prevent ghost vendors by inspecting all invoices to make sure the funds are being dispersed properly. Make sure you know who you’re writing checks to, what they’re doing, and how frequently they should be receiving payment. If something looks off, investigate it immediately.

You also need to have a formal vendor approval process in place. This means having someone sign off on every contract before it is finalized and executed by your company. You should also have a written policy that details the process of approving vendors and ensuring they are paid on time and correctly.

You may also want to consider installing software that tracks your vendor payments and alerts you when problems arise or when there’s an unusual amount of activity on any one account.

One of the best ways to prevent ghost vendors is to know exactly where your money is going. There’s very little room for error within a tight network, so it’s unlikely that you’ll be swindled by an internal agent without somebody else noticing. Knowing exactly where your money is going for the month will also help you prioritize more effectively, which can in turn boost productivity and reduce costs.

Have questions about ghost vendors and corporate fraud? Schedule a consultation with a private investigator!