Billing Schemes

  • A shell or dummy company is a fictitious entity, generally created by an employee, which has been established exclusively to perpetrate a fraud. A shell company often consists of little more than a post office box and a bank account. The employee submits what appears to be legitimate invoices from the dummy company for services or goods that would be of the type normally purchased. When these invoices are paid, the fraudster, unbeknownst to the buyer, keeps the payment.
  • Fraudulent disbursements can be effected by using what are or were legitimate vendor invoices. The amount of the original invoice is increased or the original invoice is paid twice. Alternatively, a payment can be intentionally sent to the wrong vendor. When the vendor returns the overpayment, the employee intercepts it and keeps the money.
  • Employees sometimes make personal purchases using company funds. The fraudulent purchases are often made using the organization’s credit card, so that payment appears to be nothing more than the proper settlement of organizational debt.

Billing schemes follow the typical form of creating invoices for ficitious goods or services, inflated invoices, or invoices for personal expenses. Most billing schemes charge for services, rather than goods, because it is easier to conceal services that are not performed than goods that are not received.

Risks Risks Risks
General Guidance Invoices cannot be traced to shipments.

Multiple payments to single vendor on the same date.

Pattern of purchases just below review level.

Unusually quick turnaround of invoices.

Payment to multiple vendors for same product.

Extreme inventory shortage.

Expenses increase dramatically.

Unexplained rise in cost of goods sold.

Unexplained decrease in gross/net profits.

Excessive materials orders.

Goods not purchased at optimal point.

High level approval of a low level transaction.
Controls:
  • Invoices, purchase orders and receiving reports must be matched before payment issued.
  • Purchasing department should be independent of: receiving, shipping, accounting.
  • Purchases must have management approval.
  • Maintain a current approved vendor list.
  • Use competitive bids for major purchases.
  • Vendor purchases should be reviewed for abnormal levels.
  • Control methods should be implemented for duplicate invoices/purchase orders.

National Medicare Fraud Takedown Results in Charges Against 243 Individuals for Approximately $712 Million in False Billing