What Is Invoice Fraud and How to Prevent It

There’s always someone out there prepared to take advantage of a company’s weaknesses for financial gain! Business owners must have procedures in place to guard against things like invoicing fraud!

invoice fraud

There is a lot of invoice fraud than you might imagine!

You’ll understand why when you see how it’s done. To keep your firm from losing money due to fake invoices, we’ll explain what is invoice fraud and how to spot the warning signs.

What is an Invoice Fraud?

Fake invoices sent by fraudsters from legitimate suppliers are often used to defraud your company by claiming to have changed the supplier’s payment details.

The perpetrators of invoice fraud may be aware of previous business ties with suppliers and the specific dates on which regular payments are due. When a reputable supplier follows up on a non-payment of an invoice, it is often possible to uncover invoice fraud.

It is tricky to distinguish legitimate from fraudulent invoices. Scammers send invoices to your inbox from a fake supplier’s email address.

Getting your money back once you’ve sent the payment is difficult. Therefore your companies and the financial team must watch out for any changes in payment data when sending payments to suppliers.

How Does Invoice Fraud Work?

Due to their familiarity with business ties, invoice fraudsters are well-versed in the payment schedules of their targets. The fraud may be revealed when the legitimate provider follows up on non-payments.

A well-written letter or email from a fraudster might be difficult to detect unless the company has a well-established system of controls and processes. Malware-infected computers can provide criminals access to legitimate email addresses, making email spoofing a common practice.

Changes to the bank account information for a person you send money should always be handled with extreme care.

How to Avoid Invoice Fraud: 7 Steps to Take

Fraudsters love to prey on the Accounts Payable department. Criminals hoping to take advantage of your company use overburdened AP departments to submit fraudulent bills.

The consequence of a single false invoice may not be significant for your business. In the long run, however, invoice fraud can be rather costly. Implementing these tips can dramatically lower your company’s risk of being a victim of invoice fraud.

1st Step: Use 3-Way Matching

You’ll be less inclined to pay a false invoice if you can connect each invoice to a purchase order and receipt of items. Most scammers aren’t going to the trouble of creating three different fakes.

2nd Step: Check the Amounts Due on Invoices

There may be indicators that an invoice is not legitimate based on the amount on the invoice itself. Squeaky-clean checks (such as those for $9999.98) should trigger red flags if your organization demands further scrutiny of invoices above $10,000.

3rd Step: Keep Your Morale Up

The perpetrators of invoice fraud can originate from inside or outside the firm. Happy employees are less likely to perpetrate fraud and are more likely to catch it from outside sources. Their loyalty to you and the company will be stronger if they don’t have any legitimate grievances to bring to the company’s attention.

4th Step: Make Sure Your Vendors Are Up To Date

For the most part, phony invoices are sent out in the name of an honest company with a bogus address or bank account number. The address of any new sellers should be entered into Google maps so that you can verify their legitimacy. If the address is a home or a post office box, it’s a significant red flag that something is wrong. Also, contact them immediately if your current vendors’ account information has changed.

5th Step: Invoice Activity Tracking 

You’ll know when something has changed if you keep an eye on your invoice activity. You might see 50 bills from a single vendor that usually sends you 5 to 10 months. You should contact them to confirm, even if you think it’s authentic.

6th Step: Use the “Fuzzy Matching” Technique

When committing invoice fraud, one tactic is to make multiple payments to the same account number using nearly identical copies of the original invoice. They may even change the date, invoice number, or bill amount. “fuzzy matching” is required to catch near-duplicates and identical invoices.

7th Step: Adopt Automated Methods

These other techniques for combating fraud can be used more effectively if you automate your account payables (AP). To prevent invoice fraud, this is likely the most critical step you can take.

Fraudulent Invoices Come in Five Forms

1.  Third-Party

In this fraud, a bill is produced and then paid for products or services that were never delivered or completed. An invoice re-direction tactic used by hackers or vendors is called invoice re-direction. Another option is for a vendor to work with an invoiced business employee to ensure the unauthorized invoice is processed through the AP system.

2. Overcharging of Workers

It is possible for vendors to include incorrect information on the bill, such as inflated numbers of employees and/or working hours, to increase the amount of money they get from a customer.

3. Products or Services that are not up to par

Vendors attempting to deliver substandard goods to customers is another prevalent instance of invoice fraud that businesses must contend with. Deloitte says that these kinds of scams can be highly complex and are meant to fool buyers into believing that a defective product is, in fact, authentic.

4. Paying in two places at once

Paying duplicate invoices is a significant expense for the accounts payable department. Vendor invoice fraud isn’t usually to blame for these problems.

Occasionally, a seller will send another invoice if payment has been delayed. Paying invoices twice is possible when the AP department’s PO and invoice matching process has holes.

5. Internal fraud

Even though most companies know invoice fraud’s dangers, most measures taken to guard against it are directed at vendors and other third parties. It is important to perform a regular audit to check all the invoices in the company.