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Invoice Fraud: What It Is And How To Prevent It

It is a sad fact of life, but there are large numbers of unscrupulous people all over the world who want to take anything they can get their hands-on, and not in the way that decent, hardworking individuals, like you and I do. Where we work hard to get what we have, as individuals or a business, there are those trying to find new and improved ways to con us out of our rewards. This time Invoice Fraud.

Predominantly it’s money or goods of value that they are after so that they can sell them for money and they are constantly coming up with clever and inventive ideas to part us with our cash.

This blog is going to be focused on one of these methods, invoice fraud. Invoice fraud is technically an umbrella statement, it is one thing we are talking about, but the number of ways to achieve it is surprisingly high. Most people think the majority of invoice fraud is carried out within your own supply chain, or even internally. It certainly does happen, suppliers of goods or services have been known to falsify documents, deliberately duplicate invoices or even just blatantly put a higher amount payable than originally agreed – that’s just to mention a few ways too, unfortunately when you learn how a company or individual operates it becomes easier and easier to recognize holes in their systems and given the opportunity they will exploit them.

Without adequate non-antiquated controls/systems in place, it can be very easy for these invoices to go by unnoticed and get the fraudulent amount paid in full, and more often than not they are never even revealed or suspected as being fraudulent so it will likely continue to happen each time the fraudsters invoice you and you can be sure that if they get away with it once they will try to do it more frequently too.

Oddly enough it’s more common for the fraudster to just be some random individual or group of individuals systematically targeting companies with fake invoices and banking on the fact that a lot of businesses are behind in their accounts payable or just don’t have a secure system in place to red flag such activity.

For the most part, what these swindlers do is assess what they can about a company, figure out which suppliers they use regularly and then pretend to be them, the invoice will look the part, there will be some small discrepancies obviously as the ill-gotten gains need to go to them and not to the supplier they are trying to mimic. Sometimes they just create a completely bogus invoice, unlike anything your company has seen before, and surprisingly a large number of these invoices just get paid! The Association of Certified Fraud Examiners (ACFE) actually estimate that 5% of all revenue is lost to occupational fraud each and every year.

Procurementexpress.com has helped expose many of these scammers for our clients, we published one such example in a blog a little while back, you can see it here if you missed it. Purchase Orders, invoices and fraud

Usually when people are stung by such scams it is due to being behind on paying the bills in general, as an example say an invoice arrives from Company XYZ for a relatively immaterial amount of routinely purchased goods/services, things like printer paper, toner, office supplies, maintenance, telephone systems, software subscriptions, etc. Accounts Payable look at the invoice, it seems genuine enough so it gets placed in the pile of bills to be paid in the upcoming days or even weeks. The bill eventually gets paid without anyone realizing that the invoice was a complete fabrication.

The other main reason is that there are no controls in place to spot these fraudulent invoices. It’s amazing to me just how much money is lost when even a simple system would help to prevent it.

So what can be done to prevent fraud? Creating awareness is always a good start, try to keep on top of the latest trends in scams and let people know about them. Be suspicious of invoices with rounded numbers or amounts just below any approval limits you may have in place. When was the last time you saw something for sale at a rounded number? It’s always 9.95 or 99.95 etc and for some or other reason this is where the fraudsters stop being smart as they tend to send bogus invoices with rounded numbers. The approval limit issue is to help show internal fraud for the most part, if someone decides to steal from their own company they likely know who has to approve what and how much for, if they want to get by easier they will make a series of invoices at just below the approval limit knowing it is more likely to go unnoticed.

3 way matching is a great internal control to use, you take the internally generated purchase order, match that to shipping documents obtained when the goods are received (services obviously don’t have shipping documents but most works carried out will come with paperwork signing off of the completion of said service) then match those to the invoice, unfortunately this can be quick a lengthy process if you don’t have an electronic solution in place and with a paper system not finding the purchase order or the shipping documents doesn’t always mean it’s a fake, inadequate systems lose things or they can end up incorrectly filed somewhere else, that’s when the real nightmare begins.

The best way to combat these types of losses is to have an electronic system in place, I know you are probably thinking that I would say that seeing as I’m lucky enough to be a part of a really great solution myself, but by all means don’t take my word for it, it is well documented across many industries that electronic systems are a good investment, saving you time, saving you money and reducing losses through fraud are just some of the benefits, in fact we are so sure you’ll benefit from our service that we even give you a trial so you can try before you buy and have nothing to lose. If you’d like to take advantage of that or even just an informal chat then just let us know, we are always happy to help.

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