Invoice fraud is a serious threat to business, but even the smallest businesses can build robust practices as safeguards against it.
The rise of invoice fraud
Invoice fraud occurs when criminals deceive businesses into making payments by passing off as suppliers. They go to great lengths to fool companies, often hacking email and intercepting correspondence to gain information about suppliers. Unfortunately, this is a big issue in India.
Just last year, criminals impersonated India’s Oil and Natural Gas Corporation Limited and communicated with Saudi Aramco, which unknowingly transferred millions of dollars into a fraudulent account. Big businesses aren’t the only ones at risk, experts say hundreds of companies are falling prey to invoice fraud in India.
Little wonder then that more than 50 percent of Indian businesses surveyed by Deloitte in 2014 believe that such incidents are on the rise.
To guard against invoice fraud, small businesses need to backup payment processes with robust safety measures. Educate your staff about the risks and teach them to detect fraudulent invoices. Before issuing payments, match purchase orders with invoices and receipts.
Look for discrepancies, such as names spelled incorrectly or email addresses with minute differences. When you make payments, alert suppliers so they can confirm transactions. Double-check when suppliers request changes to financial arrangements, such as switching accounts for payments. Make a phone call to gain confirmation, as email can be hacked.
Once you’ve built strong defenses for your business, you need to watch for the warning signs of fraud. You can spot them by using accounting software – simply check the activity log or use auditing tools. Look out for:
- Rounded invoices. Criminals often fake invoices with rounded amounts, so suppliers with a high percentage of rounded-amount invoices should be scrutinized.
- Invoices just below the approval limit. These signal employees may be committing fraud as creating invoices just below a manager’s approval limit is the quickest way for an accounts clerk, for instance, to skim the most money.
- Abnormal invoice volume. While it may be due to an increase in business, it also indicates fraud, so it merits investigation.
Report the crime
In the event you do uncover invoice fraud, be sure to report it as soon as possible. Contact your bank and the beneficiary, so they can try to prevent the funds from dispersing. Report the fraud to the police and consider seeking legal advice, particularly if a significant amount of money is involved.
Lastly, conduct a thorough investigation to pinpoint how the fraud occurred, and make any necessary changes to procedures and policies to prevent it from happening again. Small businesses should treat the threat of invoice fraud seriously.
A single incident could throw your growth plans off track, so why risk it? Design payments processes with strong defenses, watch for warning signs and create an action plan for fast response in the event fraud is detected.