What is Invoice Fraud and How to Detect It - ByteScout

What is Invoice Fraud and How to Detect It

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Invoice fraud happens when fraudsters pose as legitimate suppliers and convince businesses or organizations to change the banking details of legitimate suppliers. The fraudsters then go on to receive the multiple payments sent by the business or organization, presumably to the legitimate supplier.

That goes on until such as the time that the legitimate supplier sends queries about non-payment of invoices. Often, by that time the fraudsters will have withdrawn the funds, and tracing them becomes a difficult and expensive affair.

According to PWC, 41% of government agencies report an instance of economic fraud within a period of 24 months. In another survey by Lloyds Bank, 53% of their customers said they had experienced invoice fraud, but only 20% said they reviewed their invoices, while 37% said they did not have procedures to prevent invoice fraud.

  1. Who is Vulnerable to Invoice Fraud?
  2. How to Detect Invoice Fraud
  3. Check Supplier’s Email
  4. Detecting Internal Invoice Fraud
  5. Regular Audits Can Help Detect Fraud

How to Detect Invoice Fraud

Who is Vulnerable to Invoice Fraud?

Government agencies, businesses, and organizations are all vulnerable to invoice fraudsters. To prevent invoice fraud, all those involved in approving and verifying transactions must be vigilant. Fraudsters are well aware of the working and routines of their victims.

How to Detect Invoice Fraud

The surest way to prevent invoice fraud is to be vigilant when making payments. In that regard, you can do the following to detect fraud when it happens.

Change of Banking/Payment Details

Always flag any changes in supplier banking details for further scrutiny when payments are made. Check the invoice sent after the change of banking details. Fake invoices often differ from legitimate ones, and they generally look cheap.

For instance, the logo may look blurry, the supplier signature may be different, and there may be slight changes in layout. Moreover, fraudsters are always impatient and in a hurry to get their invoices paid.

Check Supplier’s Email

Fraudsters will use a fake email, but go on to make sure it closely resembles the original email. When you receive instructions to change banking details via email, check each letter of the email address, and call to verify the change, using the contacts in your file.

See if it matches what you have on file; the email should match both the username part and the domain part. If any of the two parts of the email address differ, then you have an active email fraud going on.

Most fraudsters register a website with a domain similar to a supplier they are impersonating. Then they create an exact email address for defrauding unsuspecting customers. The business website domain they register can differ from the legit one by a letter, number, or even a dash.

Detecting Internal Invoice Fraud

Internal invoice fraud is also common and happens when staff collude or act alone to defraud the business. This is normally done by a senior accounting staff or managers, to get paid for services they never offered.

You can detect this type of fraud, if you have different approving work for invoicing, approving invoices, and writing checks. You can, for instance, have the engineers approve work or services rendered, and then procurement department managers approving invoices.

The accounting department to write checks or send the payments, based on the approved work reports, attached to the invoices. Having many people involved in the invoicing chain helps to shed light on fraud much faster.

Regular Audits Can Help Detect Fraud

You should conduct regular audits of the payments you have made, and check if there is a new supplier or a change in the volume of payments made. A change in the amounts paid is always an indicator of possible fraud or additional expenditure. This is always the easiest method to detect low-level fraud.

Conclusion – Invoice Fraud and How to Detect It

Invoice fraud is more common than many businesses, organizations, and governments suspect. While high-level invoice fraud cannot go on for long without being detected, low-level invoice fraud can go undetected because of the small amounts involved.

Overall, being vigilant and carrying out regular financial audits, protecting supplier information, and verifying and asking for confirmation of changes can help to detect fraud. We hope you found this guide to be informative, and you will become more vigilant when processing invoices.

You can see how to detect fraud with PDF.co Document Parser HERE.