Most of the shell company schemes involve the purchase of goods rather than services.

The statement is false. Shell company schemes most often involve the purchase of fictitious services rather than goods. The primary reason is that services are intangible. When a fraudster uses a shell company to bill for services that were never rendered (e.g., consulting, administrative support, maintenance), there is no physical product for the victim organization to receive or inventory. This lack of a physical asset makes it significantly more difficult for the victim to verify the legitimacy of the transaction and easier for the perpetrator to conceal the fraud. In contrast, billing for non-existent goods creates a discrepancy between purchasing records and physical inventory, which is more likely to be discovered through routine inventory counts, reconciliations, or inquiries from personnel expecting the delivery of the goods.

The assertion that goods are more common in shell company schemes is incorrect. While such schemes can involve goods, they present a higher risk of detection for the perpetrator. A fraudulent purchase of goods results in a tangible asset shortage—the company paid for something it never received. This creates a clear audit trail and a physical anomaly that can be readily identified. Therefore, perpetrators of shell company schemes overwhelmingly prefer the ambiguity and intangibility of services to perpetrate their fraud.

1. Association of Certified Fraud Examiners (ACFE). (2023). Fraud Examiners Manual

International Edition.

Section 2: Financial Fraud Schemes

Subsection: Billing Schemes

"Shell Company Schemes" (pp. 2.214-2.215): The manual explicitly states

"Because services are intangible

it is usually more difficult for the victim organization to verify that they were never rendered. For this reason

most shell company schemes involve the purchase of services rather than goods." It further explains that when goods are fraudulently purchased

the victim is left with a shortage in inventory

which can be detected during physical counts.

2. Singleton

T. W.

& Singleton

A. J. (2010). Fraud Auditing and Forensic Accounting (4th ed.). John Wiley & Sons.

Chapter 6: Billing Schemes

"Shell Company Schemes" (p. 134): This academic text

widely used in forensic accounting university courses

corroborates the ACFE's position. It notes

"The fake invoice may be for services or for goods. It is easier to get away with a fake invoice for services than for goods

because the goods would have to be delivered to the company and accounted for in inventory." This highlights the logistical and accounting challenges that make fraudulent goods purchases more detectable.