CMA Final · Cost and Management Audit · Forensic Audit

During a forensic review, an examiner finds that a supplier's invoices to a manufacturing firm have consecutive numbers, the supplier shares an address with an employee of the purchasing department, and no goods receipt notes exist for several invoices. Which type of fraud scheme do these red flags most directly indicate?

These red flags indicate a fictitious vendor or shell company billing scheme. Consecutive invoice numbers show the supplier has no other real customers, the address shared with a purchasing employee shows a conflict of interest, and the missing goods receipt notes show that nothing was actually delivered.

AFictitious vendor (shell company) billing schemeCorrect
BChannel stuffing to inflate revenue
CSkimming of cash sales before recording
DPayroll ghost employee scheme

Explanation

Consecutive invoice numbers suggest the supplier has few or no other customers, a shared address with an employee suggests a conflict of interest, and missing goods receipt notes show no goods were delivered. Together these point to a fictitious vendor billing scheme. Ghost employee fraud concerns payroll, not supplier invoices.

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