When a company is notified that payment details from a particular supplier have changed, and the company is given alternate details, this may be done to commit fraud against the company. The party responsible for this fraud may be claiming to be from a company’s real supplier. It is common for funds to be quickly transferred in this situation. Trying to recover money from a fraudulent account is very challenging. This is known as invoice fraud.
How It Happens
The party responsible for invoice fraud will often know about the relationships a business has with its suppliers. They will also know the details of when regular payments are made. This type of fraud is often not discovered until the legitimate supplier questions the business about non-payment. The fraudulent emails and letters received by a business will likely be well written. This makes the fraud difficult to identify. It is common for a company to not have strong controls or operating processes designed to prevent this type of fraud. It is easy to spoof an email address. Should the computers of a business be infected with malware, genuine email addresses could be utilized.
Who Commits Invoice Fraud?
The parties responsible for invoice fraud are often just a random group of individuals or simply one individual. They will systematically target businesses with fake invoices. They are depending on businesses being behind with their accounts payable. Many do not use a secure system that would identify such activity. The parties responsible for the fraud will learn what they can about a business. They will make a lot of effort to identify which suppliers a company regularly uses and then try to provide invoices that look like legitimate suppliers. The invoices they provide will have the appearance of being authentic. There will be differences designed to make certain the payment goes to them and not an actual supplier. There have been times when parties committing fraud have created invoices the company has never seen. These often get paid. It has been estimated by the Certified Fraud Examiners (ACFE) that 5 percent of all business revenue is lost to invoice fraud annually.
Prevention
A good way to develop a system of invoice fraud prevention is to create awareness. Key people involved with invoicing in a company should be aware of the latest scams. A huge red flag is invoices with rounded numbers. Another is invoice amounts just slightly below any approval limits a company has in place. These two methods of invoice fraud often go unnoticed until it is too late.
Three-Way Matching
This is an excellent internal control method for preventing invoice fraud. The internally generated purchase order is matched to the shipping document from when the goods are received. These are then matched to the invoice. The drawback is that this can be a lengthy process unless an electronic system is in place with a company’s paper system.
Invoice Fraud Prevention
When a company is told to changes the bank details for the supplier, it should have a process in place that involves contacting the supplier and confirming the information. All accounts payable should be reconciled with a company’s bank monthly. Employees need to be trained to look for red flags and how to handle them. More than one employee should regularly check invoices so new eyes are always reviewing things.
The best way to prevent invoice fraud is to stop it before it begins. A company should have electronic and physical systems in place to regularly review and authenticate invoices. It is a small investment that could save a company significant amounts of money over time.
