What type of fraud scheme involves an employee setting up a shell company to purchase goods that they then sell back to their employer at an inflated price?

The type of fraud scheme described is accurately identified as a pass-through scheme. In this scenario, the employee creates a shell company to purchase goods, which they then sell at an inflated price back to their employer. This scheme involves the use of a fictitious business entity to facilitate inflated transactions, allowing the employee to profit from the difference between the cost and the inflated sale price.

A pass-through scheme is characterized by the element of purchasing goods or services from an external source (in this case, the shell company) and passing them off as legitimate expenses for the employer, often at a markup. This can result in significant financial losses for the employer, while the employee unlawfully enriches themselves.

Understanding this scheme is crucial for detecting and preventing fraud within organizations, as it highlights the potential for employees to exploit business relationships and internal procurement processes for personal gain.