Four Steps To Protect Your Business From Invoice Fraud Schemes

Invoice fraud can be difficult to recover from and be even more challenging to spot. According to a survey from Census Wide and Medius, businesses lose an average of $300,000 to invoice fraud. While it can be difficult to detect, there are steps your company can take to reduce damages or even prevent invoice fraud 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.

Four 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 reduce 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 research to determine what fraud has occurred and gather evidence. Contact us if you need assistance or have questions about invoice fraud.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.