Don’t Fall for Invoice Fraud Schemes

Middle-market businesses lose an average of almost $300,000 annually to invoice fraud, according to a recent survey by software company Medius and researcher Censuswide. Invoice fraud can be challenging to spot — and even more difficult to recover from — but your company can take steps to prevent it from happening.

Common Types

The most common type of invoice fraud is fraudulent billing. In billing schemes, a real or fake vendor sends an invoice for goods or services that the business never received (and may not have ordered in the first place).

Overbilling schemes are similar. Your company may have received goods it ordered, but the vendor's invoice is higher than agreed upon. Duplicate billing is where a fraud perpetrator sends you the same invoice more than once, even though you've already paid.

Employees sometimes commit invoice fraud as well. This can happen when a manager approves payments for personal purchases. In other cases, a manager might create fictitious vendors, issue invoices from the fake vendors and approve the invoices for payment. Such schemes generally are more successful when employees collude. For example, one perpetrator might work in receiving and the other in accounts payable. Or a receiving worker might collude with a vendor or other outside party.

4 Steps

To stop invoice fraud and perpetrators from succeeding in their schemes, take the following four steps:

1. ‍Conduct due diligence. Verify the identity of any new supplier before doing business with it. Research its ownership, operating history, registered address and customer reviews, if they exist online. Also, try to find someone who has done business with the vendor and can vouch for its legitimacy. This could be a competitor or an employee who knows the supplier from working at another company.‍
2. Review invoices carefully and methodically. Don't "rubber stamp" invoices for payment. Look them over for any red flags, such as unexpected changes in the amount due or unusual payment terms. Manual alterations to an invoice require additional scrutiny, as do invoices from new vendors. If something seems wrong, contact the vendor that issued the invoice to confirm it's legitimate. If the response lacks credibility or raises additional concerns, decline to pay until you've cleared up any confusion.‍
3. Control the review and approval process. Implement and adhere to antifraud controls when processing invoices. For example, confirm with your receiving department that goods were delivered and check invoices against previous ones from the same vendor to ensure no discrepancies. Also, you may want to require more than one person to approve invoices for payment.‍
4. Depend on technology solutions. Automating your accounts payable process can help prevent and detect invoice fraud. For example, using optical character recognition (OCR) to scan and read invoices can help ensure they're paid on time and that the amounts and line items match the prices quoted and any documentation in your company's financial records. OCR minimizes employee intervention and the potential to divert payments to personal accounts. It also makes collusion with vendors more difficult.

If the Worst Occurs

Even if you take all precautions, invoice fraud may occur. If you discover a scheme in progress, act quickly to minimize the damage. Notify your bank or credit card company to stop payment on invoices that haven't yet been paid. And if you intend to file an insurance claim or want to pursue criminal charges, be sure to file a police report.

We can help you and your attorney build a case against a suspect by gathering and analyzing fraud evidence and even testifying in court. Contact us if you need assistance or have questions about invoice fraud.