Fraud is a serious issue for businesses of all sizes. One type of fraud that’s becoming more common is invoice fraud. In the second quarter of 2024, accounts payable software provider Medius released the results of a survey of 1,533 senior finance executives in the United States and United Kingdom. On average, each company saw 13 attempted cases of fraud and nine successful ones in the past year. In the U.S., each fraud case cost about $133,000, adding up to roughly $1.2 million per year.
Typical Fraud Schemes
Invoice fraud can be perpetrated in various ways. Common fraud schemes are:
Fake Invoices: A vendor sends a bill for products or services that the company never received or didn’t order.
Overbilling: The company gets what it ordered, but the bill is higher than agreed.
Duplicate Billing: The company is sent the same invoice multiple times even after paying.
Internal Fraud: Sometimes, employees commit fraud. For example, a manager might approve payments for personal purchases or create fake vendors and approve their invoices.
In cases of internal fraud, there could be more than one employee at fault. For example, one person might handle receiving goods while another works in accounting, or the two might team up with an outside vendor.
The survey suggests that invoice fraud is widespread. It's important to have policies in place to prevent it and respond quickly if you suspect any wrongdoing.
How to Prevent Fraud
Know Your Vendors: Before doing business, make sure you verify who the vendor is. Look into their ownership, address, customer reviews, and ask for references.
Careful Invoice Review: Don’t just approve invoices automatically. Train staff to spot unusual changes or discrepancies, like different amounts or payment terms. Pay special attention to invoices from new vendors.
Double-Check: If something seems off, reach out to the vendor directly to clarify before making a payment. In cases where the response lacks credibility or raises additional concerns, the invoice should be declined until the matter is resolved.
Extra Measures: Make sure the payment team confirms goods were received before paying. Also, check the goods received against what was ordered, and the received invoice against previous ones from that vendor. Have more than one person approve high-value payments to prevent oversight.
Use Technology: Automating your payment process can help spot fraud. Tools like Optical Character Recognition (OCR) can scan invoices to ensure everything matches your records. This technology reduces the chance of fraud by limiting employee involvement.
If you suspect a vendor or business partner of fraud, immediately halt all transactions with them until the issue is resolved. If you believe you've already been a victim of fraud or think your accounts payable system needs an evaluation, reach out to our firm for assistance. As our client, we’re committed to ensuring your systems are robust enough to prevent fraud and maintain steady cash flow. Schedule an appointment to get the support you need.
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