Vendor Impersonation Fraud Leads To $36 Million Crime

Provided by Travelers Risk Management Plus+ Online

Authorities recently extradited a former accounting manager from Costa Rica, where he had been held since 2017. The accounting manager is accused of embezzling more than $36 million from his former employer, a Los Angeles media technology services firm.

The accounting manager allegedly stole the money while working for the organization, initially as an independent contractor and then as an employee, from 2009 to 2016.

According to a spokesperson for the U.S. Department of Justice (DOJ), the man formed a Nevada-based corporation with a similar name to one of his employer's vendors. He then opened a bank account, in the corporation's name, over which he had sole control. He used the real letterhead of the employer's vendor to create fake letterhead on which to submit his fraudulent invoices to the employer.

The DOJ further alleges that the former accounting manager used his position "to approve and direct payments totaling more than $36 million to this bank account."

He allegedly used the embezzled funds to pay off $23 million in credit card debt. Investigators say he transferred eight million dollars to his personal bank accounts and spent millions more on "miscellaneous expenses." The former accounting manager faces 10 counts of wire fraud. If convicted, he could be sentenced to 20 years in federal prison for each count. Brian Day "Suspect in $36 Million Embezzlement Extradited to L.A. From Costa Rica" ktla.com (Feb. 14, 2019).

  • Vendor impersonation fraud occurs when someone, either an employee or a third party, impersonates a real contractor or vendor and tries to do business with the organization. They may contact the organization to change the bank account number into which payments are deposited so that legitimate invoices get paid to the criminal's account. Or, criminals may, as in this case, falsify invoices to get the organization to pay them for services not rendered.

  • To prevent vendor impersonation fraud, confirm directly with your vendors their direct deposit information and their invoices.  Always follow up with the vendor or contractor using the known phone number, not a phone number included in the request.

  • Train your accounting employees to make sure that the name and information listed on all invoices is exactly accurate. Fraudsters may create a fake organization with a name that is very similar to one of your vendors. In that case, small details can signal that the invoice is fraudulent. Educate those in accounting and other relevant departments on vendor impersonation and other forms of fraud to watch out for. Provide a third party to which they can report suspected internal or third party fraud.

  • Your organization must also create a systems of checks and balances whereby you make sure that the vendor actually performed the work or supplied the products or services specified in the invoice. In addition, reduce the risk of fraud by checking that the vendor is not paid more than once for any given service, product, or job.

  • Require at least two individuals, ideally in different departments, to sign off on payments to reduce the risk of fraud and collusion. Routinely audit your financial records, looking for signs of vendor impersonation and other types of fraud.

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Joe Cox