Case Study: Vendor Fraud Detection in a Multi-Outlet Food Business
Uncovering a 14-month procurement fraud and Rs 16.2 lakh leakage across a four-outlet restaurant chain
Executive Mandate Summary
Key Transaction & Governance Challenges
- •Daily procurement was controlled by the kitchen manager, creating concentration of vendor selection, ordering and invoice approval responsibilities.
- •Two vendors had undisclosed relationships with the kitchen manager through family and banking connections.
- •Individual purchases were relatively small, making unusual transactions difficult to identify through conventional review.
- •Invoices were processed without systematic independent verification of actual quantities delivered.
Northrop Execution Architecture & Methodology
Section 1 — The Central Issue
The owner noticed that cash was consistently tighter than the P&L suggested. The business was profitable, but monthly cash surplus was approximately Rs 1.5 lakh to Rs 2 lakh below expectations. Over 14 months, the cumulative gap reached approximately Rs 25 lakh.
The issue initially appeared to be operational inefficiency. A procurement forensic review showed that a significant portion of the leakage was instead connected to two vendors and the kitchen manager responsible for daily procurement.
Section 2 — How the Procurement Arrangement Worked
The kitchen manager selected vendors and placed daily orders for perishables. Two of the 35 vendors were operated by his brother-in-law. Their invoices appeared genuine in format, but quantities were systematically inflated by approximately 15% to 25%.
The excess payment was effectively shared between the vendor and the kitchen manager through a monthly cash arrangement.
Section 3 — Procurement Analytics
Northrop extracted 14 months of purchase data from Tally and profiled every vendor by incorporation structure, transaction start date, invoice frequency, average invoice value, total procurement value and product-level pricing.
Two vendors stood out. Both were sole proprietorships, had started transacting within approximately one month of each other, supplied overlapping categories and priced several products approximately 18% to 22% above comparable vendors.
Section 4 — The Employee-Vendor Connection
The investigation then cross-referenced vendor information against employee records.
The phone number associated with Vendor A matched the emergency contact number recorded for the kitchen manager. Vendor B's bank account shared a joint holder with the kitchen manager's salary account.
A 30-minute analytical cross-reference connected information that was already present in the company's own systems.
Verifiable Institutional Outcomes & Value Realized
- Procurement leakage attributable to the two connected vendors was quantified.
- Previously undisclosed employee-vendor relationships were established through data cross-referencing.
- Physical verification demonstrated that invoiced quantities exceeded actual deliveries.
- Vendor onboarding, delivery verification and price benchmarking controls were introduced.
Ashish Chaudhary
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