What Exactly is Invoice Fraud?

When you run a business, you know that at some point you are going to face obstacles. 

But what happens when it’s not an ordinary problem but a direct threat to your company? 

Unfortunately, that’s the case with invoice fraud. 

If this is the first time you have heard about it, then great, however, that doesn’t change a frightening fact, invoice fraud is becoming more common these days. Attackers are targeting businesses with ease, but wait, there’s no need to panic, not totally at least. While at first glance, it might look as if invoice fraud is unavoidable, certain practices can help you spot the problem before it’s too late. 

Should we learn more about it?

What Is Invoice Fraud?

Simply put, invoice fraud happens when someone intentionally manipulates the invoicing process to trick your company into paying for goods or services that were never provided, or even to pay the wrong recipient. Now you might be wondering, how do they do that? Well, it starts when fraudsters create fake invoices, alter real ones, or worse, steal the identity of legitimate vendors to carry out these scams. 

The goal?

Steal as much money as they can from you. 

Terrified already?

The Rise of Invoice Fraud 

Here’s the thing, everyone loves the benefits digitalization brings and here at ControlHub, we are the first ones to always highlight the advantages of using technology in businesses. Efficiency and cost-saving opportunities are among the top benefits of automating your processes, however, nothing good comes without a bit of bad.  As more companies move their financial operations online, cybercriminals have more opportunities to exploit digital vulnerabilities.

Let’s see it in more detail

Data breaches 

Yes, nowadays, we use technology to store all the information we need. The downside? With critical data like customer details and financial records stored online, hackers have more opportunities than ever. A single breach can compromise vast amounts of sensitive data, which could lead to significant harm to your business in more ways than one. 

Third-party systems

Another common and normally harmless practice is to work with third-party platforms. This type of software is not under your control but under the management of someone else. So the moment you choose to integrate external services into your business operations you are accepting the likelihood of dealing with a different set of security risks. Every third-party tool you use could introduce vulnerabilities that hackers might exploit if they find the opportunity to do so. 

Tech advancements

But wait, didn’t we just say that the boom of digitalization is positive? Yes, it is, the problem comes with the people who use it for the wrong reasons. As our digital world keeps evolving, we find ourselves face-to-face with new technology. Implementing the latest security measures can be overwhelming. 

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Types of Invoice Fraud

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Fake supplier invoices

Probably the most common, it involves generating a fake invoice that looks like it’s coming from a legitimate supplier. If your accounts payable department isn’t paying close attention, they might end up processing and paying these invoices without any suspicion. 

Invoice  alteration

Sometimes, criminals will intercept invoices sent by your suppliers. They then alter the payment details, such as the bank account number, and send you the modified invoice so that instead of paying your supplier, you send the money to their accounts. 

Vendor impersonation 

Cybercriminals can also impersonate your vendors by hacking email accounts. They might send urgent emails requesting payment to a different account or claim that their bank details have changed. As you can notice this scam is a bit more elaborate so it’s not as easy to detect. 

Duplicate invoicing

In this scheme, fraudsters send the same invoice multiple times, hoping that your accounts payable department will pay it more than once. Sometimes, legitimate vendors may mistakenly send duplicate invoices, which is not a big deal if only happens once, if it’s becoming a habit…then you might want to have a word with your suppliers. 

Inflated  charges

In other cases, fraud involves legitimate invoices that have been altered to include inflated charges or services that were never rendered. These small overcharges may go unnoticed, especially if your company deals with high volumes of transactions.

Internal fraud

Yes, this one, while scandalous, is quite real. Some people on your team may set up fake vendors in your accounts payable system or take advantage of their purchasing power for personal expenses. Without strong controls, these fraudulent activities can easily go unnoticed.

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Consequences of Invoice Fraud

As you can already imagine at this point Invoice fraud can lead to severe consequences that aren’t only limited to financial losses. Yes, your business could lose significant sums, but it could also lead you to have problems with your suppliers, imagine the chaos of explaining to a supplier that you are sending the money to a scammer. And while you deal with the aftermath, what could happen with the rest of your operations? To make things worse, if your customers learn about the fraud it could hit your brand’s reputation.  

How to Prevent Invoice Fraud

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Trust no one

Harsh as it sounds, it might be the best strategy to put a barrier between your company and cyberattacks if you are going to work with new people, it could be a new supplier or even a new staff member, be sure to carry out a thorough research process, how does their record look like? How many years do they have in the business? Paranoic as it might look, having a clear understanding of those close to your company’s operations will give you peace of mind and reduce your chances of falling victim to fraud. 

Automation

Choosing a good procurement software  can streamline your accounts payable and accounts receivable process and help flag anomalies, such as duplicate invoices or changes in vendor information. These systems often include built-in fraud detection features and limit the amount of people who have access to your financial and customer records.

Keep good communication with your suppliers 

The next time someone in your team opens an email from an alleged supplier informing them that they have changed their bank account information, tell them to grab the phone and get directly in touch with the supplier. Bonus point if this is not the first time you guys have spoken with the vendor, this way you’ll be able to recognize the voice or detect a impostor.

Train your team 

Following that line of thought, think of your employees as your first line of defense against fraud. Provide regular training to help them recognize the signs of invoice fraud and understand the importance of following established processes.

Document matching

What better way of checking the accuracy of an invoice than comparing them to your records? To be sure that the invoice you have just received is 100% legitimate check if the address and bank details match previous entries and if the order size, price, and timing are consistent. If anything seems off, like an unusually large invoice, do not make a payment until you have double-checked it. 

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In Case of Invoice Fraud, What to Do?

If your business falls victim to invoice fraud, act quickly by contacting your bank to try to reverse the payment. Report the incident to local authorities and relevant fraud protection agencies for guidance and possible investigation. Next, review your security measures to identify vulnerabilities and make improvements. Finally, communicate openly with your team to raise awareness and prevent future incidents.

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