Featured Article

The overlooked factor

‘Invoice factoring’ is highly susceptible to fraud

A business can legitimately sell its outstanding invoices for a percentage of their face value to receive money quickly to expedite cash flow. The process allows nearly $3 trillion in transactions per year worldwide. However, invoice factoring is vulnerable to fraudsters. This case shows red flags and susceptibilities.

Gary Todd Smith had a problem. The Fayetteville, North Carolina, firm that he managed was losing money — fast. For four decades, Smith Advertising (which Smith’s father, Gary Truman Smith had created), had been prosperous. But profits for the business, which also had a branch in Sarasota, Florida, began to decrease in the mid-2000s partly because of the principals’ excessive salaries and then the financial crisis.

Advertising work slowed, but the bills piled up. Banks were stingy with lending. An external CPA advised that the business could cut their executive salaries, or they could declare Chapter 11 bankruptcy and restructure. Unfortunately, the Smiths’ greed and pride wouldn’t permit them to do either. In 2007, they decided to engage in fraud — only temporarily, they thought — and then they’d be financially solvent after payments would resume. (See Father and Son Sentenced for Fraud, FBI NEWS, July 19, 2019, and Advertising Executive Sentenced To Forty Years In Federal Prison For Fraud Scheme, U.S. Department of Justice, Dec. 6, 2018.)

As an FBI agent on the case, I had a front-row seat to the Smiths’ machinations to avoid losing their firm and perpetuate their comfortable lifestyles. 

For full access to story, members may sign in here.

Not a member? Click here to Join Now. Or Click here to sign up for a FREE TRIAL.