Solving Invoice Fraud
In the past, fraudsters scammed paper-based invoicing systems by submitting duplicate invoices, over-billing for work, and billing for goods or services that were never delivered. Even in today’s digital world, invoicing fraud is still a costly experience for business owners. However, they can solve invoice fraud by taking the following steps.
Know Who You’re Dealing With
If you’re working with a client, customer, or employee for the first time, then take some precautionary measures. This includes agreeing on the scope of the project and payment. Make sure that you get these terms in writing before proceeding any further.
If this is the first time working with a client, secure a deposit and make verify their contact information. Do a quick online search to see if they’re on the up-and-up. If you notice anything fishy about this individual, don’t commit to the project.
Be on the Lookout for Red Flags
What if everything looks legit and you move forward with the client only to become a victim? This could have been avoided if you and your team were able to spot any red flags.
These red flags include a logo that doesn’t look correct, poor grammar, different bank account numbers, varied contact information, invoices in even amounts, and spotting the same numbers over and over. According to Benford’s Law, the number 1 should show up 30% of the time.
The Guide to Combating Corruption & Fraud in Development Projects adds the following red flags to be on the lookout for general red flags like;
Weak controls over the review and payment of invoices
- Discrepancies between contract or purchase order, receiving documents and invoices
- Discrepancies between contractor’s billings and supporting documents
- Invoice is in a round number amount if that is unusual
- Total payments to a contractor exceed total contract or purchase order amounts
Red flags of false invoices:
- No receiving report for invoiced goods or services
- Invoiced goods or services cannot be located in inventory or accounted for
- No purchase order for invoiced goods or services
Red flags of inflated invoices:
- Invoice prices, amounts, item descriptions or terms exceed or do not match:
- Discrepancies between invoice amounts and supporting documents
Red flags of duplicate invoices:
- Multiple payments in the same time period
- Multiple invoices with the same:
- Description of goods or services
- Invoice number
- Purchase order number
Total amount paid to vendor exceeds invoiced amounts.
Having your staff aware of these red flags is a simple, and effective, way to prevent invoice fraud from taking place in the first place.
Use Electronic Software
Electronic invoicing is an excellent way to prevent invoice fraud. As Bel Temel, Payments Manager within Accounts Payable at Bexley, tells the Spend Matters Network;
“When you have an eInvoicing system, like the Tungsten one we use, there’s no need for suppliers to use paper at all, everything is done electronically. We can be more confident that each invoice submitted via the system is more likely to be genuine, owing to the security levels, and it is less likely that a bogus supplier can submit a fraudulent invoice.”
Temel added, “When we didn’t have an electronic system, invoices could get lost among the many layers of the AP process, we had no visibility of what stage an invoice might be at, we couldn’t track progress or see bottlenecks, and we couldn’t answer supplier queries quickly and efficiently.”
Electronic invoicing software is secure and harder to duplicate than paper-based invoicing systems. Additionally, electronic invoicing goes directly to the party paying the invoice instead of getting intercepted elsewhere and you can set-up recurring payments so that a client’s credit card or bank account are automatically charged each month.
Another perk is the many invoicing systems, like our own, come equipped with powerful time tracking tools so that the amount of time being spent on a project isn’t inflated.
Consider Joining the Blockchain
One interesting solution could be using the blockchain the solve invoice fraud. The blockchain, for those unfamiliar, the blockchain is a publicly distributed ledger that records each bitcoin transaction. Once a coin is spent, it’s gone.
We’re big fans with the potential that the blockchain presents – especially when it comes to scams. For example, the blockchain ensures that fund are not distributed until both parties verify the transaction, is difficult to counterfeit, and is extremely secure since third parties have been removed.
Invoice fraud is a very real threat that could cost your business hundreds, if not thousands, of dollars. But, if you take the right precautions, are aware of any red flag, and use technology like electronic invoicing or the blockchain, you’re vastly decreasing the odds of becoming a victim.