Question

Explain the concept of a shell company and a pass-through scheme. List and describe two procedures fraud examiners can use to help uncover various vendor fraud schemes. Edit.

Answer 1

A shell company is a non-operational company used for fraudulent activities. Fraud examiners can uncover vendor fraud schemes by analyzing invoice patterns and performing vendor audits.

Step-by-step explanation:

A shell company is a non-operational company used as a vehicle for various fraudulent activities, such as tax evasion, money laundering, or hiding assets. A pass-through scheme, on the other hand, involves funneling money through legitimate businesses to make it appear legitimate and avoid detection.

To uncover vendor fraud schemes, fraud examiners can use two procedures:

1. Analyzing invoice patterns: Examining the frequency, amount, and payment terms of invoices to identify red flags, such as unusually high amounts or invoices from unrelated vendors.
2. Performing vendor audits: Conducting thorough reviews of vendor records, financial statements, and payment history to identify any discrepancies or irregularities.