One of the fears that controllers, CFOs, and other finance professionals live with on a daily basis is invoice fraud. Business email compromise scams have resulted in losses of about USD 12.5 billion globally since 2013, according to a recent FBI report.

Notably, the COVID-19 pandemic’s recent supply chain disruption has significantly increased payment fraud. According to surveys, payment scams affected 74% of businesses in 2020. The effects of fraud on businesses can be severe and extend from severe monetary losses to reputational harm.

This blog post focuses on all the information you need to know regarding invoice fraud, including the methods you can use to avoid it.

How Invoice Fraud Occurs?

Payment fraud comes in a variety of shapes, sizes, and frequency levels. Most of the time, a fraudster notifies a business that a supplier’s payment information has changed somehow. After that, they will proceed to give false information in an effort to defraud the business. With more sophisticated techniques, fraudsters hack into the email system of a business supplier and create and send fake invoices from an actual email address or accounts. Fraudulent accounts are difficult to recover because funds lost to fraud are frequently transferred at breakneck speeds.

Who is Most Prone to Invoice Fraud?

According to research, small and medium-sized businesses are more likely to be the target of invoice fraud. Giant corporations, however, are also susceptible. For instance, Amazon recently suffered a $19 million loss as a result of a well-planned invoice fraud scheme. Particularly, law, IT, and HR firms are among the riskiest industries.

What Kinds of Invoice Fraud Are Usually Practiced?

As previously mentioned, there are several variations of invoice fraud. Common invoice types include the following:

False or double-billed invoices

Fraudsters may sneak fake or duplicate invoices under the radar, whether from within or outside organisations. These con artists frequently send invoices for small sums so they can escape dragging nets. Typical items like subscriptions, directory listings, compliance services, and paper are frequently included in fraudulent invoices.

Shell Businesses

Another common method of fraud is to send invoices through a phoney company. Shell companies are business entities that typically do not have a physical location and only have a mailing address as their only employee. Internal fraudsters, who are typically errant employees, use made-up names and addresses to collect payments from false invoices.

Phishing Schemes

External fraudsters think businesses always struggle to detect fake bills. Phishing schemes occur when fraudsters pose as legitimate businesses to trick accounts payable staff into transferring money. Phishers frequently forge legitimate supplier emails, which they then use to send businesses phoney invoices and bills.

Cash Skimming

Internal payment fraud, known as “cash skimming”, entails removing cash from a company before it is recorded in the accounting system. Skimming leaves no audit trails that could identify the source of the theft, making it very difficult to detect.

Who Commits Invoice Fraud?

By purposefully submitting false, exaggerated, or duplicate invoices, internal staff members and outsiders can commit fraud. The majority of the time, external fraudsters commit payment fraud in concert with hiring staff due to corruption.

Six Indicators of a False Invoice

In recent years, con artists have improved their techniques by utilising cutting-edge technology. In order to improve your chances of detecting something suspicious before it can cost you money, you should also maintain hawk-eyedness and make use of contemporary fraud detection tools.

Top warning signs of invoice fraud include the following:

• Dollar amounts are rounded.
• invoices that must receive a higher level of approval but are just below the threshold.
• invoices where the sender’s address is a mail drop rather than a physical one.
• the high number of invoices from one supplier.
• Bills with typos, grammar errors, and an amateurish appearance.
• invoices that lack specificity and provide little information about the goods/services purchased.

Some examples of Typical Invoice Fraud Cases

Here are a few real-life examples of invoice fraud:

The fake invoice scam

This is arguably the most well-known phishing template: the fake invoice method. The end user is pressured to pay for goods or services they haven’t even ordered or received in this scam, which, like many phishing attacks, plays on fear and urgency.

Email account upgrade scam

The email account upgrade scam may pose as your company’s IT department or one of the well-known email providers like Microsoft or Google threatening to let your account expire if you don’t take immediate action.

Advance fee fraud

Perhaps a laughable justification for an elaborate story is receiving an email from a foreigner pleading for your assistance in recovering a trapped sum of money. But don’t be duped; this scam has been around for a while for a reason: it is effective.

Scam with Google Docs

The Google Docs scam, one of the most recent and prominent phishing techniques, offers an additional sinister twist because the sender is frequently someone you know. This extremely sophisticated email invites you to click on its link to view a “document,” which redirects you to a page that looks almost exactly like the login page for Gmail. After choosing an account, you are invited to grant access to your Google account.

PayPal scam

PayPal, which has about 200 million users, is a very profitable tool for online criminals. PayPal provides fraudsters access to a platform directly linked to their credit card or bank account in addition to its large number of accounts.

Unusual activity scam

Typically, when someone receives an email or text message stating that there has been “suspicious activity on your account,” alarm bells start to ring at full volume. Because victims experience confusion, urgency, and panic, this scam is very effective for con artists.

The Methods and Resources Available for Preventing Invoice Fraud

You must take the following actions to stop invoice fraud once you have learned crucial information about the different kinds of fraud and all the warning signs:

Three-way Matching

Before making any payments, the three-way matching process verifies the purchase’s specifics by comparing the invoice and purchase order and receiving the report. Undoubtedly one of the most thorough methods for processing a vendor invoice to reduce the risk of fraud is three-way matching. The technique offers thorough validation of various supply chain links, making it simple to spot fraud.

Separation of Functions

The risk of fraudulent activities ultimately rises when a single employee is given control over all financial transactions, including submitting POs, validating invoices, and making payments. A workplace rule known as the segregation of duties ensures that no one person is given the power to handle two or more conflicting sets of responsibilities. For instance, while those who select and onboard vendors should pay invoices, employers who tender POs shouldn’t approve invoices.

Monitoring Invoicing Activity

Additionally, you ought to spend money on contemporary tools that monitor invoices and payments. The top invoice tracker ought to have cloud accessibility and a dashboard that shows total costs, paid and unpaid invoices, and profits. With the help of invoice tracking systems, you can streamline the invoice processing process and view analytics reports instantly to gain insights into the volume, status, and any process bottlenecks.

Automation

Additionally, you can automate the three-way matching processes to make sure that your invoices move automatically through the AP process without requiring manual intervention, saving employees’ time and lowering the risk of errors and fraud. You can quickly flag invoices with inconsistent or missing data by automating your invoice processing. Additionally, the software has the ability to flag invoices whose data is similar to an invoice that has already been matched. With the help of this feature, you or your team can look into the problem before the invoice is submitted for approval.