Protecting Your Business from Invoice Fraud

We welcome this guest article courtesy of Lee Pruitt, CEO, InstaSupply - spend control as a service technology provider. 

A growing business has to manage many relationships. This can very quickly amount to hundreds of customers, suppliers and partners. It’s hard to keep track of every single statement, agreement or transaction - and without the right checks and balances in place, it’s all too easy for duplicated or inflated invoices to slip through unnoticed. In the private sector alone, losses are estimated at $144 billion a year.

Regardless of the size of your business, it’s crucial that you know how to identify and eliminate instances of fraud. Here is some advice on how to spot any fraudulent activities taking place in your business, and how to safeguard your company from future risk.

Look out for these red flags

Contractors and suppliers can commit invoice fraud by knowingly submitting false, inflated or duplicate invoices. However, they can only get away with it if you aren’t paying attention. If your business has weak controls in place to manage its invoice payment process, then you may as well hand over the keys to the castle.

Unfortunately, human beings aren’t always the best gatekeepers, especially when they are overworked or don’t have access to the best tools. A company we know almost paid another company’s invoice by accident - simply because the various people involved let it slip through their existing system. The invoice arrived at the company’s head office by post, was entered into the system and processed through the accounting software. It then queued for payment and only at the last moment, did someone in accounts spot the error.

In another example, an accountancy company that handles payments for one of its clients got a panicked call from the client who needed a number of invoices paid immediately - otherwise the supplier would put all deliveries for the business on hold. The client wanted to simply handover a lump sum of money without checking if the goods were actually delivered and all orders were completed.  No matter how close the client’s relationship was with the supplier or how urgent the situation, someone can always inflate the prices above what was initially agreed. Or, someone can always slip an illegitimate order into the pile and pass it through authorisation in the rush.

These attempts at fraud happen daily in today's business landscape. Primarily, because there is no real connected system of record to prevent any opportunity for fraud in the first place. Look out for discrepancies between purchase orders (POs) and invoices. If your payments to a contractor exceed the total PO amounts within a specific time frame, then you may be dealing with a case of duplicated, inflated or falsified invoices.

Take immediate action

If you do believe your business is a victim of invoice fraud, don’t panic or do anything rash. Before you can confront anyone, you need to gather evidence. Make sure you do this calmly and discreetly. Enlist the help of legal and accounting professionals, and work with them to gather information, analyse it and build a plan.

If your systems are not online yet, it’s definitely time for an upgrade. Online PO and invoice processing makes it easier to investigate potential fraud. You can access all the historical data you need without having to sift through reams of files or follow dusty paper-trails. It also provides real-time visibility into all aspects of your accounting. This helps protect your finances and makes it much harder for someone to commit fraud at all.

Minimise future risks

Once fraud has been uncovered with supporting evidence, those contracts need to be terminated immediately. When sourcing replacement suppliers and contractors, make sure you go through their invoicing processes thoroughly. Understand key PO and payment dates, get to know their finance team and align your systems as best as possible.

Fraud is not only an external threat. It can also be perpetrated by employees in positions of trust and power such as payroll managers. When one employee has complete oversight over certain processes, the opportunity to commit fraud increases. Reduce this by implementing an online authorisation system that requires multiple approvals.

Apart from loss of money, fraud can also cost a company its reputation. Don’t let rumours circulate – tackle the issue quickly and show your customers, employees and other suppliers that you are taking action. This will help maintain strong relationships, mitigate any reputational damage, and keep your business operating smoothly.

Identifying fraud is important. However, realistically it’s unlikely you’ll recover 100% of the stolen funds. It is far better to invest in comprehensive, connected internal processes that prevent it from happening in the first place.

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