Pass-Through Scheme
Definition
A billing scheme in which a legitimate supplier is used as a conduit. The fraudster, who controls or colludes with the supplier, inflates prices or adds fictitious line items. The victim organisation pays the inflated invoice, and the excess flows back to the fraudster.
- Category
- Billing and vendor fraud
- Mechanism
- Fraudster controls or colludes with a supplier
- Method
- Inflated prices or fictitious line items
- Effect
- Excess payment flows back to the fraudster
Common questions
How does a pass-through scheme differ from a shell company scheme?+
A pass-through scheme uses a real, operating supplier the fraudster controls or colludes with to inflate genuine invoices, whereas a shell company scheme uses an entity providing no real goods or services at all.
What red flags help detect a pass-through scheme?+
Prices consistently above market rate from one supplier, a supplier address or contact overlapping with an employee, and invoices approved without competitive bidding are common indicators.
Related terms
- Benford's Law
- An empirical regularity in naturally occurring numerical datasets: the leading digit follows a logarithmic distribution, with 1 appearing about 30% of the...
- Duplicate-Payment Analysis
- A data analytics test that identifies invoice payments made more than once for the same obligation, by matching on vendor, invoice number,...
- Shell Company
- A legal entity with no genuine business operations, created to receive fraudulent payments. In vendor fraud, the fraudster controls the shell and...
- Three-Way Match
- An accounts-payable control that requires a supplier invoice to match an authorised purchase order and a goods receipt note before payment is...
- Vendor Master File
- The master record of approved suppliers in the accounts-payable system, containing each vendor's name, address, tax identification, and payment bank account. Unauthorised...