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What is Invoice Fraud and How to Prevent it

What Is Invoice Fraud & How to Prevent It

Whenever there’s an opportunity to exploit a company for money, someone is willing to take advantage of it. As a company owner, it is important to have internal processes to prevent crimes such as invoice fraud.

Invoice fraud is much more common than you may think. When you take a look at how it’s conducted, you will understand why. We’ll break down what it is and what are the red flags to look for when it comes to fraudulent invoices to prevent it from costing your company money.

What is invoice fraud?

Invoice fraud is when fake invoices are sent to targeted businesses in an attempt to extract money from companies with vulnerabilities in their accounts payable processes.

Fraudsters target a company based on their size and location to narrow down what suppliers they may use regularly, such as office supplies, cleaning services, etc.

With this information, they then create phony invoices on behalf of these suppliers that look legitimate except for small discrepancies such as different addresses.

Armed with the knowledge that most Accounts Payable departments are always playing catchup, they send these false invoices with a sense of urgency such as ‘This Invoice is 90 days past due’.

To top it off, invoice fraudsters are refining their craft by making the dollar amount of the invoice low enough that it won’t trigger suspicion. For example, if $1000 is within the first approval level, it will get approved easier and thereby bypassing your accounting controls such as three way matching.

Without a thorough investigation, these fake invoices can easily get paid out. Businesses with multiple departments and poor communication can easily be susceptible to substantial amounts of invoice fraud.

Some other types of invoice scams to look out for include duplicate invoices and inflated invoices. Some fraudsters or dishonest companies may send multiple invoices that claim to charge you for a service you already paid for, or perhaps they will raise the price on the invoice higher than what was agreed to.

How to prevent invoice fraud?

Three way matching

Three way matching (3-way matching) is Accounts Payable departments best practice to validate legitimate invoices. This process involves matching an invoice with the purchase order AND the receipt of goods. Read more about three way matching here.

Streamline your accounts payable workflow

Stay on top of your accounts payable with real-time AP reporting & visibility. Doing so will give you easy information about your supplier accounts if you are behind on any payments.

Double check the invoice details itself

Make sure that the invoice you received has a legitimate invoice date, email address, contact information, bank account number, and bank details. It is easy to do a quick google search to ensure whether an invoice is from a genuine supplier or not. If it is a suspicious invoice, run it by your finance team.

Accounts payable basics you’re missing out

To ensure your company prevents invoice fraud, check out this post for more accounts payable best practices. You’ll learn about:

  • Adjusting and Reversing Entries
  • Accounts Payable Automation
  • Organization based on type or workflow
  • Approval processes

What can I do if my company is a victim of invoice fraud?

In Canada, the RCMP has a fraud reporting system that you can report these cases. This is considered consumer fraud. Visit the RCMP’s Reporting Scams and Frauds website for more information.

In the United States, search for consumer fraud reporting organizations at the state and/or federal level. Here are some organizations that may be of help:

Stop Fraud.gov
Department of Justice

It’s important to report fraud even if the amount is low. Chances are the authorities are tracking a tremendous amount of fraud in their database from the same fraudsters.

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