Invoice fraud can be harmful regardless of the size of the company. Since the pandemic’s breakout, the number of people working remotely has expanded dramatically, reducing oversight and control over invoicing activities and increasing invoice fraud.
Scammers are becoming more skilled, and they are continually improving their attacks to evade detection. One frequent method is to pose as a vendor and send bogus invoices to the accounting department for unwanted or even non-existent goods and services.
Data from BusinessWire shows a 200% increase in business email compromise (BEC) assaults intended to commit payment or invoice fraud.
Generic invoices that could be manually separated from duplicate invoices and fictitious invoicing are a thing of the past. Technology advancements have led to an improvement in scammers too. This implies that you run the danger of suffering a potentially expensive loss if your finance team does not keep a close check on every invoice data that passes through.
What is Invoice Fraud?
Fraudsters send inflated invoices to companies with complicated invoicing systems to steal money. Reclaiming money from fraudulent accounts can be challenging because money is frequently transferred fast. They first target businesses based on their location and size before finding their suppliers, such as those who provide office supplies, food, and cleaning services.
The fraudster could pose as a representative of a legitimate supplier or even a member of your company’s staff. The accounting department of the target firm receives fraudulent phone bills from fraudsters posing as suppliers asking for payment.
Fraudsters send fake invoices to companies with complex financial systems to steal money. It might be challenging to recover funds from fraud because money is typically transferred fast. Before finding suppliers, such as those who offer office supplies, food, and cleaning services, they first identify firms based on their location and size.
The fraudster could pose as a reputable vendor or even an employee of your business. The accounting team of the target company receives bogus phone bills from con artists posing as suppliers looking for payment.
How Does Invoice Fraud Happen?
Many businesses continue to manage their payables manually and on paper. Because they can identify and take advantage of holes in an organization’s accounts payable process, scammers profit from invoice fraud and payment fraud. Successful invoice fraudsters find and take advantage of a weakness in the company’s AP procedure. The vulnerability is due to ineffective controls and poor departmental communication.
Also, don’t think that scammers only target large organizations. Invoice fraud can cause havoc for businesses of all sizes in any sector. Since they are frequently unfamiliar with payment systems, scammers frequently target junior-level, new, or volunteer employees or volunteers in businesses.
Fraudsters are clever and opportunistic, as invoice scams involve many upgraded technologies. They frequently grasp the process between you and your client or supplier, even down to the regular payment due date to understand any phony invoice past.
Email is a popular way used by invoice scammers to send bills. Email addresses are simple to fake. Attackers may acquire access to your real email account addresses if your organization’s cyber defenses are poor or if a system is infected with malware.
Changing someone else’s bank information should be done with utmost caution.
How to Identify Fake Invoices: Combating Invoice Fraud
Check the Clarity of the Logos
If the fraudster is not a part of your client’s company, chances are they are using scanned duplicate payment documents of the same invoice to steal from you. This is shown by the attributes of the logo on the invoice, which cannot be scanned and reused with the same clarity. This can be a simple and basic indication. Experienced accounts payable teams can easily check supporting documents, any different bank account, fraudulent activity, employee fraud, etc.
The Account Number is Changed
If the fraudster changes even one critical piece of information on a previously existing, legitimate invoice, such as a bank account number for an electronic payment process.
Once again, a keen eye can save the day. Your company should compare the print in critical fields to the print on the rest of the invoice of a big payout. Is there such a thing as a comparable font? Perfect match? Hitting the line as the other personal details are stated?
Furthermore, as an added measure of control, compare that field on the invoice to previous ones from the same vendor.
Invoices in Even Amounts
Fraudsters are more likely to frequently write even numbers while creating a fake invoice. Double-check it if you see it on the invoice because this frequently happens in fraud cases. You should raise red flags if you come across an invoice with even totals.
This is a further crucial sign of invoice fraud, claim fraud experts. Remind your company staff that being highly organized can be risky. Cybercriminals commit fraud but mostly forget to keep these small details while making payments request in check.
5 Ways to Prevent Invoice Fraud
Use Automatic Invoicing Software to Safeguard Your Bank Account
When the AP process is automated, invoices are routed directly via it, saving staff time, eliminating errors, and lowering the risk of fraud.
When the matching process is automated, no human participation is required, eliminating the risk of anything being missed as well as the possibility of an individual misrepresenting the data.
When the accounting process is automated with automated invoice matching, the system discovers invoices that contain contradictory information. This marking allows business employees to undertake extra research before approving the matter. E-invoicing delivers emails directly from your accounting program to the accounting software of your supplier. Manual processes must be avoided at all steps with built-in AI technologies, for ap processes and ap automation.
Track Invoice Activity to Avoid Fraudulent Invoices
When the AP process is automated, the risk of fraud is reduced, staff time is saved, and errors are prevented because invoices are delivered straight through it. Because no human intervention is required, there is no risk of anything being missed during the computerized matching process or of someone providing inaccurate data.
When the invoicing process is automated, the system detects invoices with incorrect data. This designation allows firm officials to conduct an additional study before approving the matter. E-invoicing allows you to send emails directly from your accounting program to your supplier’s accounting software.
Separation of Responsibilities
No one should perform numerous sets of tasks that are incompatible with one another, according to the concept of segregation of duties. Allowing a single person to conduct financial transactions such as payments and then record them facilitates fraud.
In contrast, the principle of segregation of duties states that no single person should be charged with handling two or more competing sets of work. Those who select and onboard vendors are also not compelled to pay invoices. Furthermore, all operations must be examined or confirmed by a third party to eliminate prejudice and fraudulent behavior.
An automated procure-to-pay solution with approval procedures stating who authorizes bills and configured permissions ensuring that no one may do conflicting actions within the system could considerably help the division of duties.
Supplier Due Diligence
Fraudulent vendor bills may usually be avoided by properly identifying and onboarding new providers. When onboarding vendors, certain due diligence steps must be performed. Due diligence investigations may also include discovering whether the vendor is on any sanctions lists that would prevent them from doing business in the US.
An automated procure-to-pay system with a vendor portal requires you to collect such vendor master data as well as PO, invoice delivery options, and all supporting documentation from the start before processing payments to new accounts.
You can ensure that you only do business with genuine, fully compliant suppliers by requesting such information during onboarding and asking vendors to retain their data later. You may therefore regularly check their performance and financial condition during the length of the contract to guarantee that you are always protected against fraud and non-compliant behavior.
Double Check the Account Number on Duplicate Invoices
When a supplier emails you about new account details or a new account number appears on their invoice, utilize the second mode of communication to check this is legitimate – don’t email back, instead call or text them.
Everything must be prioritized and carried out fast and efficiently with fewer errors. Except to manually approve payments and approve invoices. Always check an urgent email, or a suspicious email from new suppliers twice. Verifying invoice information and invoice number is equally important. You must involve the prudential regulation authority in cases of fraud.
Prepare Your Bank Accounts for Payments
For larger organizations, this may comprise a database that connects to your bank account so that bills may be paid to the respectable and standard method. This requires entering supplier information into your banking app rather than manually entering it from the invoice each time for smaller enterprises. Also add supporting documents, documents of the purchase order, services rendered, legitimate goods, and accounts in a centralized place to appropriate parties to avoid financial loss.
Conclusion
The possibility of false invoices increases with time as it is extremely difficult to keep an eye on all the procedures. Invoice fraud is a constant concern to financial departments around the world to keep their company safe. However, if your organization is aware of the various common types of fraud, warning signs, and preventative techniques, you will be in the greatest position to mitigate its impacts when any new invoices are paid.
Stay safe and happy invoicing!
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
