Reference no: EM133543441

Discussion Post

Vendor schemes can be subcategorized as either fictitious vendor or pass-through schemes. With fictitious vendor schemes the victim company receives nothing from the fictitious vendor except the bogus invoices. Thus, the fraud loss is determined by adding up the total payments made to the vendor. A pass-through scheme is one in which the fraudster sets up a shell company as an unnecessary intermediary between a legitimate vendor and the victim company and makes an unauthorized profit on the transaction. Accordingly, with a pass-through scheme the victim company is actually receiving something in exchange for payments made to the shell company. Thus, the fraud loss is the amount of the unauthorized profit made by the fraudster. With pass-through schemes the victim company receives invoices from the shell company instead of from the vendor that is actually providing the products or services listed on the invoices. Based on your understanding of how the two schemes work, develop a strategy for determining whether the fraudster is perpetrating a fictitious vendor scheme or a pass-through scheme. Using the most suspicious vendor's taxpayer id number as the password, carefully examine the "Bank Statement" file which contains the bank statement and copies of the cancelled checks. Determine whether the suspicious vendor you have identified is a fictitious vendor scheme or a pass-through scheme. Explain and defend your answer in Memo format.