Vendor Red Flags - Chapters Site

1 Vendor Red Flags Presented by: Greg Taylor, CFE Senior Vice President Corporate Audit Partners Introduction Greg Taylor 27 years of accounting and auditing Industries Banking Aerospace Advertising Owned Forensic Accounting Business 17th year in the recovery auditing industry Published author Please review Corporate Audit Partners website to review some articles. Why Employees Steal and fraud Basics, The Perils of a Small Business . White paper University of Arizona, Eller College of Management, How to Lose $ Billion in One Week - Seven Ways to Protect Your Information from Security Loss Corporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano.

2 CA 92675 Vendor Red Flags 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. Airplane Crash Red Flags do not dictate guilt or innocence but are a warning to look closer. Do not ignore Red Flags .

3 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.

4 CA 92675 Vendor Red Flags Incomplete Address Report VM Report VI Sample Company A VENDORS WITH MISSING ADDRESS FIELDS Vendor NUMBER Vendor NAME Vendor TYPE ADDR 1 ADDR 2 CITY STATE COUNTRY 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 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.

5 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 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.

6 CA 92675 Vendor Red Flags Vendor /Employee Match Report Address MatchEm ployee IDVendor NumberVendor NameAddress 1 Address 2 CityStatePostal Code614153317 DOUBLETREE HOTEL SAN JOSE1050 GATEWAY PLACE SAN JOSECA951100000000845 Plotter Pros1086 The AlamedaSuite 100 San JoseCA95116C11145617 RECOMMENDED RESOURCES11 AMHERST ROAD AMHERSTMA1001C11145617 RECOMMENDED RESOURCES (INACTIVE)11 AMHERST ROAD AMHERSTMA1001 MATCH0099851336 HillSan MarcosTX78022 MATCH917150807S M DESIGNES1336 HILL St SAN MARCOSTX78022711131708RT CONSTRUCTION13455 NOEL RD SUITE 430 DALLASTX75140615094134 RYDER TRANSPORTATION SERVICES1481 O'TOOLE AVENUE SAN JOSECA95131617143713 MONARCH INSTRUMENT15 COLUMBIA DRIVE AMHERSTNH03031-1334616094959 MASON WEST INCORPORATED1840 GRETTO LANE ANAHEIMCA91806517160003 ADVANCED SYSTEM SOLUTIONS3115 PERIVALE CT SAN JOSECA95148831Ev ent Connections3657 El Grande Driv e San JoseCA95131110 MURAD SALES INCORPORATED4600 GREENVILLE AVE SU DALLASTX75106 MATCH731143218G Consulting5506 CHIMNEY RCK DR IR VIN GTX76017 MATCH0095115506 Chimney Rock

7 Driv eIR VIN GTX76017111 JUNIOR NATIONAL WHEELCHAIR CHAMPIONSHIPS5730 CHAMBERLIN DRIVE SAN JOSECA951180000000510 HANSON PUBLICATIONS64 CLIFTON AVENUE PO B AN SONIACT06401-0514 MATCH0087016610 Manzanita MarcosTX78027 MATCHA28135104JS GRAPHICS6610 MANZANITA DRIVE SAN MARCOSTX780270000000701 INTERNET ASSOCIATION GROUP, SOUTHPOINT DRIVE SUITE 600 JACKSONVILLEFL31116 MATCH0079016701 row WayLaconiaCA05842 MATCH624135327 DYGNETS6701 ROW WAY LACONIANH05842811 BLACKSTONE - NEY9 N. MAIN ST JAMESTOWNNY14701817111810 CAE ULTRACSONICS9 NORTH MAIN STREET JAMESTOWNNY14701-0110101090844 LAB SAFETY SUPPLY INCORPORATEDDEPT #0000185191PO BOX 5004 JANESVILLEWI53547-5004909111811 SPECIALIZED PRODUCTS COMPANYPO BOX 890006 DALLASTX75389-0006101090036 LAIRD PLASTICSPO BOX 951111 DALLASTX75395516165940RW/STEARNSRIVER PARK TOWER333 W.

8 SAN CARLOS S SAN JOSECA95110-1711515091707 IEEE VLSI TEST SYMPOSIUMVLSI Test Sy mposium 1001 Attn: Maddie Harw oodAmissv illeVA10106 Client: xyz Company - Report VIEmployee Address / Vendors Address ComparisonCorporate 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.

9 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 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 123456789 MFG MFG MFG Benfor m M FG 1M FG 2M FG 3 BenfordminmaxCorporate Audit Partners - 30900 Rancho Viejo Road - Suite 245 San Juan Capistrano.

10 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 IDInvoice NumberInvoice DateInvoice AmountPO IDVendor NumberVendor NameAddress 1 Address 2 CityStatePostal CodeCheck NumberCheck Date3110412601260712/06/03$11, SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431105126012608 12/07/03$ SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431106126012609 12/07/03$24, SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431107126012610 12/07/03$ SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431108126012611 12/05/03$45, SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431109126012612 12/05/03$ SEASONING2121 QUMEN DRIVESAN MARCTX72315331153201/17/0431139126015480 01/16/04$5, SEASONING2121 QUMEN DRIVESAN MARCTX72315331164202/22/0431140126015481 01/16/04$ SEASONING2121 QUMEN DRIVESAN MARCTX72315331164202/22/0431141126015482 01/16/04$3.