Smith residence… oh, yeah, and MegaCorp Janitorial…

The Case

Bob was a church administrator, and it was his job to keep the church running smoothly. He hired the the cleaning crew, paid the utilities, and made sure they had paper towels in the restrooms.  He also paid himself.

You see, Bob wasn’t just the one who paid the bills – he was also the one who decided who to buy from, too. Under financial pressure, he opened a bank account for a company with a name that sounded like a plausible supplier. He then began writing checks to himself. Over time, he embezzled thousands of dollars. [Details somewhat embellished to make a narrative, but this is a known fraud scheme: link]

Analysis

This is an example of a purchasing scheme involving a fictitious company – no such company really existed. Another purchasing scheme is the shell company. A shell company buys cheap products and inflates the price before selling to the church. And sometimes the shipments never arrive, are incomplete, or consist of much cheaper products than were specified.

How To Prevent This At Your Church

  • Don’t let the person choosing a vendor do so without someone else approving it;
  • Require all vendors to allow you to visit and inspect their operations;
  • Actually visit vendors and see if they are a legitimate company providing what you specify;
  • Require receipt vouchers (where someone inspects arriving shipments and vouches for what arrived), and match these with the purchase orders and purchase order requests before cutting a check;
  • Run a comparison of addresses between church staff and vendor addresses: often fictitious company addresses are vacant lots just around the corner from a staffer’s house.
  • Purge vendors from your system if you are not buying from them: sometimes an embezzler will change the address of an unused vendor and open a bank account in their name.