In a pass-through scheme, where does the employee buy merchandise from?

In a pass-through scheme, an employee typically purchases merchandise from a shell company. A shell company is an entity that exists only on paper and typically does not have significant assets or operations. In this scheme, the employee may create a fictitious business or use a real shell company to make purchases that are then billed to the employer, allowing the employee to divert company funds for personal gain.

This method is particularly effective in disguising the fraudulent activity since the shell company can issue invoices and documents that appear legitimate, making it difficult for the employer to detect the fraud. The use of a shell company enables greater control over the transaction while maintaining a level of anonymity that benefits the employee. An employee purchasing from legitimate vendors, competitors, or government suppliers would not effectively create the same level of deception that is characteristic of a pass-through scheme.