Due Diligence

Supplier Fraud

Learn to test whether the money a business pays out is real — spotting phantom vendors, fake invoices, insider-linked suppliers, and kickbacks that corrupt the cost base.

  • Intermediate
  • 12 min total
  • 12 chapters

What decision this helps you make: Whether a business's cost base is real — or inflated and skimmed by supplier fraud that distorts the true profit.

What this topic is

Supplier fraud is fraud in the money a business pays out — phantom vendors, billing for goods not received, insider-linked suppliers, duplicate or round-number invoices, and kickbacks. Diligence tests whether the cost base is real by matching payments to reality.

Why it matters

Fraud in payments either inflates the cost base (so real profit is lower than reported) or reveals that profit was being skimmed — either way, the true economics differ from the statements. Verifying a business means testing the money going out, not just coming in.

Who should learn it

Anyone buying a business, or an owner protecting one from internal fraud.

What you will understand

  • Understand supplier fraud: fraud in the money paid out
  • Know the schemes: phantom vendors, fake invoices, kickbacks
  • Match payments to goods and services actually received
  • See how a corrupted cost base distorts the true profit

Prerequisites

Common misconception

"Diligence is about verifying the revenue — the costs are just what they are." The money going out can be as fabricated as the money coming in. Phantom vendors, invoices with no matching delivery, suppliers secretly linked to an employee, duplicate payments, and kickbacks all corrupt the cost base — inflating costs or skimming profit. Test the payments against reality: a cost line can be as fake as a revenue line.