Now Playing At A Company Near You
Que the orchestra music, dim the lights. The patrons stop talking, the curtains swing open and the Phantom enters stage left to thunderous applause. This sounds just like the beginning of an award-winning stage production but unfortunately for you this is no play, no music and you’re not in a theater.
The Phantom, however, does exist and there’s a very real possibility that he or she is embedded inside your company’s books in full disguise.
How It Works
The Phantom payroll fraud (typically) works like this:
Employee A sets up vendor account for company B (real or fictitious)
Employee A, or someone else at the company unwittingly approves company B’s vendor account
Company B submits bogus invoices to A’s company (services never rendered or legitimate but overinflated)
Employee A approves company B’s invoices
Employee A’s company mails check to address established by employee A
Funds are deposited into bank accounts controlled by employee A
Employee A (and co-conspirator if there is one) split the proceeds
Co-Conspirator Not Required
It’s important to note that these types of frauds don’t necessarily involve a second person as employees are perfectly capable of creating Phantom accounts, and directing payments to accounts directly under their control, without the presence of a co-conspirator.
Oftentimes, however, to facilitate the fraud there’s more than one individual involved.
Why do employees use the Phantom vendor fraud to steal? Why not, there’s money to be made stealing from your business. A lot of money!
Phantom Of The Airline
Word is out that in 2014 Delta Airlines submitted a trademark request for a new slogan: The World’s Most Trusted Airline.”
In light of recent events, perhaps, they might want to change that to “The World’s Most Trusting Airline.”
Case in point, a Delta Airlines management employee (Paul Anderson), and a co-conspirator (Michael Yedor, Hollywood producer, chairman CEO of Kings Road Entertainment/Kings Road Productions and owner of Airborne Voice and Data Communication Services), were indicted in 2014 on charges they facilitated the theft of over $36,000,000 from Delta in a Phantom billing fraud.
After the 97 count indictment was unsealed, the FBI arrested Yedor on June 21, 2014.
If the location of Yedor’s arrest provides clues about the profitability of Phantom AP frauds then there should be absolutely no doubt that these types of frauds are not only real but quite lucrative.
Yedor was arrested on his 72 foot yacht in San Diego, which the government implies Delta helped pay for.
How It Went Down
Anderson conspired with Yedor from 2004-2013 (if not longer…!)
Yedor submitted phony (no services provided) Airborne invoices to Northwest/Delta (Anderson)
Anderson reviewed and approved the bogus invoices
Northwest/Delta paid Yedor
Anderson received a kickback from Yedor
Textbook Phantom Fraud!
Here Comes Da Judge!
Yedor plead guilty on 10.20.14 and last week U.S. District Court Judge Timothy Batten sentenced him to the following:
10 years in prison
3 years supervised release
Restitution of $36 million
A judgment of $36 million
Forfeiture of properties including: a Beverly Hills mansion, its furnishings and artwork, a 72 foot yacht, a 15-foot sailboat and a Boston Whaler sport fishing boat
Forfeiture of his interests in the production companies
(Anderson plead guilty on 9.15.14 and is scheduled to be sentenced on 01.23.15)
Inevitable Finger Pointing
It would be easy for Delta Airlines to point the (it was your lack of internal controls) finger at Northwest Airlines as Anderson was employed by Northwest for the first five years that the Phantom fraud took place.
However, that doesn’t fly (pardon the pun)! Northwest merged with Delta in 2008 and Anderson continued his employment with Delta.
The Phantom fraud then continued for 4-5 more years under Delta’s management.
Sure, Delta ultimately discovered the Phantom but only after it had taken places for 4-5 years under their AP practices.
The Last Word
The fact that this fraud transcended two different companies, for a period of 10 years (or more), demonstrates a clear lack of internal controls, foundational accounting principles, audit practices, fraud detection technology and management oversight.
When it comes to Phantoms, the question is: Who’s in your books?
Those are our insights. What are yours?
For more information on how we can help your businesses prevent risk, reduce major fraud losses and improve operational ROI, contact us to schedule an initial consultation. No obligations…just unique insights from an industry leader.