COLLUDING VENDOR REAPS BIG PROFITS

A Massachusetts business owner has pleaded guilty to swindling Ocean Spray Cranberries Inc. out of US $1.3 million, according to a Cape Cod Times article. The owner’s company, Wheeler Packaging Associates, was contracted to repair and maintain bins and pallets.

From 2004 to 2008, the owner submitted fraudulent invoices to a manager at Ocean Spray Cranberries — who also is facing criminal charges — for work that his company never performed, according to the criminal complaint filed against the two men. The manager then allegedly approved the invoices for payment, and the two men split the money received
 
Lessons Learned

This situation is yet another example of how employees and vendors collude to commit massive frauds. In this case, the vendor, Wheeler Packaging Associates, produced false invoices, which the manager at Ocean Spray Cranberries approved for payment — and a kickback. While collusion can be hard to detect, the important lesson here is that companies must identify, and hopefully eliminate, conditions ripe for collusion. In this case, it appears that:

  • There was no requirement to document work performed, and invoices were paid for US $1.3 million of work that was never done.
  • There was no audit of the payments.
  • The manager always approved payments for invoices from this particular vendor. (Allowing the same person to always deal with the same vendor can create a close relationship that may be easily exploited.)
  • There was no competitive process to renew the contract. (Wheeler Packaging Associates provided the same services from 2004 to 2008.)

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