Suppliers are an important part of the profit-margin equation for any company.
Unfortunately, there are those suppliers that try to get more than their fair share of your profits. Dishonest suppliers may commit fraud in several ways to pocket money that should go to your bottom line. Since staying competitive is a large factor toward staying in business, losing your competitive edge due to higher than normal costs is a grave issue. When those costs are caused by fraud, the problem is literally criminal. Therefore, choosing a supplier to work with is a critical issue. Regular and routine security measures ensure that no suppliers have slipped through the cracks.
What are the Signals that a Supplier May be Fraudulent?
Before you hire a vendor, you should check for signals that they may be fraudulent. It is sad that there are so many people trying to make a buck from other people’s work, but the truth is that fraud is a genuine threat to your business. Compliance factors for businesses are meant to help maintain a healthy, honest relationship with your vendors, and prevent problem vendors from becoming partners with your company. Vendors that you are considering should go through an application process that checks the following items:
- Checking for overlap between the mailing address of a vendor and their employees
- Checking vendors with P.O. Box mailing addresses for legitimacy
- Verifying vendors’ tax I.D.’s and phone numbers as legitimate
- Ensuring that the business is registered with the state and that all of the forms are in order
- Having third-party verification of the vendor
By checking on all of these matters before you negotiate with the vendor, you can rule out some of the major signals of fraud ahead of time. While a vendor may look good on paper, once you start checking resources and background, you may find that things do not add up.
1. Problems with Physical Addresses
Since we often do not visit a vendor in person before we start working with them, checking the physical address for legitimacy is a critical part of the search for fraud. While a vendor may have a P.O. Box for legitimate reasons such as keeping paperwork away from their main work area, it is also a good way to hide a fraudulent business. Therefore, P.O. Boxes are a trigger for further checking before you can safely do business with a vendor. It is also possible for an address to be legitimate without the business activity being there at that address. Confirming the address takes a short time, and will save you a lot of money and hassle if the business is a fraud.
2. Tax I.D.
The federal tax I.D. is provided to companies that have proven their business qualifications and registered with the government. However, they still can be fraudulent because the original business does not exist or the number has been stolen by a former employee. Therefore, it is necessary to verify the tax I.D. as being active and matching the contact information that you have been given including the address and telephone number.
3. Employee and Vendor Matches
Another area that is simple to check before working with a vendor is whether the vendor address and contact information matches to any of your own employees’ contact information. Supplier fraud can come from within your own company as well as from without. Running potential vendors against your employee list will eliminate this problem. SupplierWorks can help you dig into any of these issues as well as any issues you have in staying compliant or maintaining vendor files. There are many steps that can be taken to clean up your vendor base, and ensure that you are earning the profit that you deserve.