Fraud Tales: Fraud Investigation Reveals Fraud Scheme in Supplies Shipping

The Director of Operations at a large national financial services firm was very good at his job.  Asked to cut costs, the Director recommended the company centralize its purchase of office supplies, a move he said would save the company more than $50,000 a year.  Sure enough, during the first three years of the program, the company’s annual savings exceeded $50,000 each year.  There was just one wrinkle.  A fraud investigation launched as a result of an eagle-eyed accounting clerk found that the actual savings topped $150,000 per year and that the Director was pocketing more than $100,000 a year for himself.

“The fraud perpetrated by this trusted employee was ingenious in that the very program he initiated to save the company money was, in fact, the same program that allowed him to siphon a significant amount of money out of the company and into his own hands,”  said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware  Valley.  “The company was thrilled that the program performed as well as the Director said it would.  There was not a single person in the company who had any reason to suspect illicit activity.”

The fraud investigation found that the Director of Operations was able to set the wheels in motion on the fraud from the very beginning.  He negotiated a deal for a significant discount on office supplies with a major office products company that would become the sole supplier of office products for the company’s more than 100 offices in all 50 states, Anderson said.  He then set up a system that allowed each office to submit a requisition for office supplies on a monthly basis.

As the requisitions came in each month, the Director consolidated them into a single order with deliveries scheduled for each office.  He then used the monthly invoice from the office products supplier to assign costs to the applicable offices and forward the approved invoice to the corporate accounts payable department for payment, said Anderson, a Certified Fraud Examiner who recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

During the fourth year of the program, a newly hired accounts payable clerk was processing the latest invoice when she noticed an oddity.  One of the shipments had been delivered to a small eastern Montana town that was near her own hometown, but it was charged to the Helena office more than 300 miles away.

Anderson said the clerk reported the discrepancy to the Corporate Controller, who contacted the Helena office to inquire about the shipment.  The Helena office manager denied any knowledge about the shipment and also denied receipt of the items shipped.  Suspicious, the Controller checked all of the shipments on that month’s invoice and found that while some shipments went to company offices, a number of them went to locations nowhere near company offices.  He took the information to senior management and a forensic accounting expert was engaged to conduct a comprehensive fraud investigation.

What the fraud investigation uncovered — and the Director of Operations admitted — was that once the agreement with the office products supplier had been negotiated, the Director set up his own website to sell office supplies at discounted prices.  As buyers placed orders and paid for them through the website, the Director forwarded the orders to the office products supplier to fill.  When the monthly invoice arrived from the supplier, the Director assigned the cost of each invoiced shipment to the nearest company office.  So the Helena office — the only office in Montana — was charged for all shipments to Montana, both those ordered by the office and those ordered on the website by unrelated companies or individuals in Montana.

The Director admitted to the forensic accounting expert that his website transactions exceeded more than $100,000 per year, meaning he had actually shaved $450,000 off the company’s office supplies expenditures over the three years, but stole $300,000 of that for himself.

“He really was very good at his job,”  Anderson said.  “He also, unfortunately, was a crook.”

Had the alert accounts payable clerk not noticed the discrepancy with the Montana shipment, Anderson said the theft might have continued much longer.  He added that the entire scheme could have been short circuited simply by having the accounting department assign the invoice costs to each office instead of allowing the Director of Operations to do so.

If your fraud deterrence measures are in need of an overhaul, it’s time to engage a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  A Certified Fraud Examiner can examine your accounting and purchasing programs and procedures and make recommendations for enacting strong fraud deterrence measures that will help safeguard your company, Anderson said.

This Tale of Fraud article is the third in a series of occasional posts that will examine actual cases of fraud that impacted businesses, non-profits or government offices and the fraud investigations that uncovered how the fraud was perpetrated.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.