Invoice Fraud

What is Invoice Fraud?

Invoice fraud is a type of fraud in which malicious actors send fake invoices to a business. Fraudsters sometimes also notify the business that a vendor’s details have changed, and provide wrong information to defraud the company. 

These invoices are generally disguised to look like an official invoice from one of the company’s vendors. In some cases, the fraudster might pose as an employee of the vendor’s organization to ask for recovering funds. 

Often times, the fraudsters create circumstances to goad victims into transferring the funds quickly, so recourse if often difficult, and in most cases, not possible. 

How Invoice Fraud Happens

Most malicious actors who engage in invoice fraud generally have some knowledge of the relationship between vendors and organizations. They also know some important details, such as when a vendor sends an invoice, or when they’re usually paid. 

This allows them to make the whole fraud more believable. In many cases, companies only discover that they’ve been defrauded when the actual vendor follows up due to non-payment of outstanding invoices. 

The fraudulent letters or correspondence is usually written by experienced fraudsters, so it’s often difficult to identify instances of fraud. In companies where strict internal controls such as two or three-way matching are not in place, the risk of fraud is generally high.

Similarly, if there are no protocols or operating procedures in place for verifying vendor bank details or changing them, the company is likely to suffer from invoice fraud. 

In many cases, invoice fraudsters keep the dollar amount low enough so that it doesn’t arouse suspicion amongst the AP department. Other types of invoice fraud include:

3. Tips to Prevent Invoice Fraud

There are several ways to prevent invoice fraud and mitigate fraud risks in the AP department. Here are a few. 

1. Use 3-Way Matching

Three-way matching is the process by which invoices are compared and matched with purchase orders and goods received notes (GRNs). These are important as they allow AP departments to ensure that an order was actually placed by the company, and the goods were actually received in the warehouse before the invoice is cleared.

2. Automate the AP Department

Using AP automation software is an excellent way to mitigate invoice fraud. When the AP process is automated, invoice details are automatically matched and recorded in the system. This greatly reduces the need for human input, which ultimately brings down margin for error and fraud.

When an employee has to independently match invoices, there’s always a risk of fraudulent invoices passing through and being approved. With AP automation software, they’re immediately flagged. 

3. Review and Verify Payment Details

When a vendor changes their payment details, always follow through and confirm with them. It’s best to call or establish direct contact one way or another to independently verify payment details before releasing payments. 

Review Bank Statements Periodically

From time to time, you should review bank statements and report any suspicious debits quickly. This can help you identify issues in their early stages. 

Reduce Invoice Fraud by Automating Accounts Payable Processes

SoftCo Procure-to-Pay is a fantastic software solution that lets organizations automate their entire finance process, from procurement to invoice payouts. It’s a global solution that helps eliminate duplication or mismatched invoices. 

The solution automates the process of invoice data capture, matching, and also the approval process, reducing fraud and delivering significant cost savings, rising up to 80%. This significantly helps companies reduce the potential for invoice fraud, and allows AP departments to focus on more important and high-value tasks instead of verifying invoices and capturing data to enter into the system.