How To Spot Invoice Fraud – What It Is
Invoice fraud is when a scammer submits false invoices to a company in the hopes of obtaining money. Companies often overlook the scam and pay for supplies or services they never received.
Typically, scammers will study a company’s regular suppliers and schedule. They will research what the company orders and how much they order. Then they will issue fake bills to the company, pretending to the their regular supplier.
Fraudsters are often ingenious in concocting fake documents that appear to be valid. By billing for low or normal amounts over a period of time, usually an average of 16 months, they can eventually bilk a company of hundreds or even thousands of dollars.
Invoice fraud is a common form of corporate fraud, targeting businesses in all verticals and of all sizes. It cost companies over $7 billion dollars last year alone. It’s somewhat more likely to happen at private than at public companies, and has greater financial impact on smaller companies.
This particular form of fraud preys on the difficulties organizations have communicating and controlling their basic processes. It takes advantage of the unwieldy nature of the accounts payable mechanism in most companies, which requires verification that goods were delivered to the right person with the correct approval procedure.
Why Does It Work?
The common weaknesses con artists prey on are poor internal controls and lack of communication between company departments. Accounts payable is often a manual process that can involve invoices coming via email, snail mail, fax, or interoffice delivery. The person who ordered the product might not be the person in the department who approved it, who in turn might not have any connection with accounts payable.
So it is easy to see how an invoice could be waved through the desk of a busy department head and signed on the assumption that the goods were delivered. Sometimes goods were, in fact, delivered, but paid for twice! Also, even in companies with more sophisticated controls systems, there is no guarantee at any stage in the process that the next person in the process will read and validate the bill.
The fraud invoice is the most common problem. They look real, and they look like they come from a company that the target firm does business with regularly. They can be spotted, however, by doing a simple inventory check. The real challenge comes from making sure that two such invoices weren’t compared to the same inventory, but not to each other!
Inflated invoices do happen, but more rarely. The scammer’s favorite form of this fraud is to solicit a series of small payments that add up to one big one.
Sometimes scammers will submit a real-seeming invoice but make small changes. These include altering one or two digits on an account number, altering an address, or changing a website from a .org to a .com.
What You Can Do
Cultivate a vigilant workforce that knows such scams are out there and which warning signs to look out for. Introduce 3-way matching, a technique that requires invoices to be matched to both goods and the purchase order.
Your company should have a regular point of contact with all its vendors. Check in regularly with them and discuss any unusual activity. For instance, if you usually get three invoices per month from them, but this past month you received nine , it might be worth bringing it up.
Finally, keep on the lookout for anything unusual. If you typically received bills by mail, but got one by email, make sure it’s legit. If you normally pay by check, but are being solicited to pay via wire transfer, that too is worth checking out.
We live in a dangerous world. There are enemies without, probing your gates for any sign of weakness. Make sure they’re locked tight.