6 · Fictitious Vendors and Undisclosed Related Parties

01The shell vendor

A fictitious vendor is a name, an address, and a bank account. Invoices are created, approved, and paid for goods or services that were never received. The scheme is elegant because the books reconcile — the money went out against a documented invoice — and the only defect is that the vendor is not real.

• Vendors whose address matches an employee, an owner, or a post office box.
• Vendors paid only by direct deposit, with no physical delivery address or W-9 on file.
• Invoices that reuse language, round numbers, or sequential invoice dates.
• A vendor approved by the same person who set it up in the system.

02The related party

A related-party vendor is real, but it is owned by a spouse, sibling, or silent partner of the person paying it. Rent, management fees, and consulting payments above market move value out of the business while looking like ordinary operations. Disclosure is the test: a related party that was never disclosed is the finding.