Amazon is the largest online merchant and one of the largest overall retailers in the world, with reported net sales of $96 billion in just the 3rd quarter of 2020 ($260 billion for 2020, year-to-date).
Like every organization, though, Amazon must diligently and continually assess their risk of fraud and mitigate or respond to it as necessary. In the 2020 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) estimated that organizations lose 5% of their revenues to fraud each year. If that estimate were to hold true for Amazon, that would mean approximately $13 billion lost to fraud so far in 2020. Although founder Jeff Bezos could probably personally cover that – it’s been reported that on a single day in July he increased his net worth by $13 billion – the company certainly has a financial incentive to manage and assess fraud.
In that same July, Amazon reported Selling Support Associate Vu Anh Nguyen to the FBI for allegedly issuing fraudulent disbursements over a four-month period to himself and his associates in the amount of $96,508. The criminal complaint alleges that the employee utilized his company granted access to issue over 300 fictitious refunds for items purchased by himself and others. The complaint also alleges theft and wire fraud along, with other schemes related to third-party seller accounts.
While the techniques Mr. Nguyen is alleged to have used are particular to Amazon and the online environment, they’re similar to what’s been perpetrated for many years when performing a fraudulent disbursement scheme. According to the ACFE’s Fraud Examiners Manual, “in fraudulent disbursement schemes, an employee makes a distribution of company funds for a dishonest purpose.”
Schemes like this can take several forms, including false refunds, which can be further defined to include fictitious refunds or overstated refunds. In a fictitious refund scheme, like what Mr. Nguyen is alleged to have concocted, a refund is issued but no merchandise is returned to inventory. The accounting for a fictitious refund results in an overstatement of inventory, which is one of the ways the scheme can be uncovered. Separation of duties and detailed or analytical reviews of refunds are two ways organizations might mitigate the risk of fictitious refunds.
Interestingly, in a separate case Mr. Nguyen was charged in August 2020 by the SEC for allegedly orchestrating a “free-riding” securities trading scheme. It’s alleged Mr. Nguyen and his associates fraudulently traded a total of $16 million in securities while having insufficient funds to cover the trades. He’s said to have caused over $1 million in losses to several brokerage firms. While the SEC charges aren’t related to Amazon, it’s worth noting that an individual may participate in multiple fraudulent schemes at once, and when fraud is uncovered in one area, a comprehensive review of the individual’s roles, responsibilities and access is warranted.
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