Charles A. Pitcher of Connecticut and Carmine Gentile of New Jersey have each pled guilty to conspiracy to commit wire fraud for their roles in a vendor kickback scheme.
The scheme began in 2022 when Pitcher was appointed as the general manager of Success Village Apartments, Inc. (SVA), a residential cooperative of 96 buildings in Bridgeport and Stratford, Connecticut.
Shortly after becoming general manager, Pitcher onboarded Umbrella Mechanical LLC, a plumbing, heating, and air conditioning company partially owned by Gentile.
Between June 2022 and September 2024, Pitcher, Gentile, and others engaged in a vendor fraud scheme during which vendors submitted fraudulent invoices for services that were either not rendered or had artificially inflated rates. Those vendors would then divert between ten and 30 percent of the fraudulent payments back to Pitcher and a second conspirator, who was not named.
Gentile's company received approximately $2.63 million during this scheme, with more than $526,000 being diverted back to Pitcher and the unnamed co-conspirator.
In total, Pitcher alone received more than $403,150 from more than $3.66 million vendor payments.
Pitcher also received at least $232,479 in "consulting fees" from SVA for services that were never rendered.
Source: https://www.mpamag.com/us/mortgage-industry/industry-trends/two-men-plead-guilty-in-36m-housing-co-op-embezzlement-scheme/590534
Commentary
Onboarding new vendors may seem easy, but it can carry hidden risks if not performed properly.
The onboarding process itself is crucial for detecting issues with new vendors that may not be obvious from first glance and would not be detected in a simple handshake agreement. Failing to properly onboard new vendors leaves organizations open to risks including embezzlement and fraud.
Research indicates that more than 80 percent of organizations did not discover new supplier risks until after the onboarding process had finished, meaning organizations are reacting to those issues after the fact, rather than evaluating and/or addressing them before that vendor touches the organization. https://technologymatch.com/blog/vendor-onboarding-process-5-stages-best-practices-for-it
Vendor kickback fraud, which occurred in the above, is a risk associated with new and old vendors. https://msna.co.in/case-study/vendor-kickback-fraud-case-study/
How can organizations help avoid potential vendor fraud risk?
These schemes can be thwarted during onboarding by evaluating why a particular vendor is being used when another vendor already exists, had a better rate, or is more highly-rated.
Close relationships between the vendor and the employee hiring them should also be carefully evaluated. If such relationships exist, that employee should be removed from the vendor evaluation process so that it remains neutral.
Organizations can also create a vendor list that has been pre-vetted by leadership. If a change in vendor occurs or is suggested and the new vendor is outside this list, a more in-depth review should be required.
Audits may also help avoid the risks by searching for fraudulent invoices for goods/services not provided or for goods/services priced significantly higher than the previous rate for that vendor or the acceptable market rate.
The final takeaway is failing to properly vet and onboard vendors may be the foot in the door for a multi-year kickback scheme. Consequently, organizations should take special care during the vendor onboarding process to help avoid the risks.
