Solarstar is a solar panel company with annual revenue of $4 billion and a rapidly growing promoter program. Its commissioned sales representatives were encouraged to sign up small businesses and sole practitioners as promoters. Promoters distributed company designed and authorized litetature (a one-page description of Solarstar's products and services) to potential customers and clients, who would call a dedicated phone number on the flyer and use a unique code associated with the promoter to obtain a quote. If a purchase was made, the promoter got a referral fee and the sales representative received a commission.
The promoter program was growing fast, and field management was ecstatic as it was thought to be opening a new sales channel. One afternoon, one of the more successful promotors contacted a Solarstar online moderator with a request to be assigned to a new sales representative. The promoter alleged to be a 17-year-old girl, which caught the moderator's attention. Suspicions were raised and the transcript of the chat was sent to Solarstar's forensic audit manager, Robert Schull. After reviewing the transcript, Schull was determined to find out how a 17-year-old girl could have signed up as a promoter, let alone become one of the more successful promoters.
Schull first wanted to understand how the promoter program worked. He learned that it was out-sourced to King Enterprises (KE), a small business run out of a strip mall in New Jersey. KE maintained a website that advertised the program and recruited potential promoters. The website had an online chat capability (that the alleged 17-year-old engaged) where current and potential promoters could ask questions or get help resolving concerns. Every week, Solarstar bulk paid KE for all closed promoter sales. KE then facilitated payment to the promoters. KE also was responsible for submitting 1099s to the U.S. Internal Revenue Service (IRS) and transferring funds to state agencies in the event a promoter did not cash the referral check timely.
Initially, Schull focused on the promoter registration process. He went to KE's website and signed up as a promoter by entering his name, address, phone number, and email address. Schull waited a few hours and received notification that he was now a registered promoter. Upon inquiry, he discovered there was no validation process to confirm the identity of the individuals registering as promoters. A review of the promoter database revealed names...