What is invoice fraud? Invoice fraud is a type of business email compromise that happens when fake, inflated, or duplicate invoices are submitted to a company for payment by a third party. Unfortunately, some of these scams are so convincing that payments continue for months before the companies being scammed catch on, resulting in losses that can amount to tens of thousands of dollars — or more.
Criminals specializing in invoice fraud do their homework. They often know how and when invoices are paid (and to whom), approval limits, and decision makers’ email addresses. Once a fraudulent invoice is paid, the scammer then knows how vulnerable that company is to their tampering efforts.
Additionally, many accounts payable departments still handle payment of invoices manually, dealing with mountains of paperwork and performing little to no validation checks due to time constraints and staffing limits. This makes it even easier for scammers to carry out their schemes.
With this in mind, it’s incumbent upon you to ensure your business is safe by knowing the signs of invoice fraud. Today we’ll review six signs of invoice fraud that you should be aware of:
- Incomplete information
- Mismatched items
- Missing purchase orders
- Unusual invoice volume
- Inflated prices or quantities
- Receipt of inferior products
1. Incomplete Invoice Information
If an invoice contains blank fields, incorrect invoice amounts, wrong account numbers, or anything else out of the ordinary, that could be a red flag.
You should always be suspicious of Incomplete invoices, even if they’re from a trusted vendor. Experienced scammers know that employees dealing with invoices from a known vendor will rarely question the bill’s validity, making it even more critical to apply routine checks to every invoice.
Pro tip: Train AP staff regularly on what specific items to look for in an invoice. If payment details are changed or amended, always verify them verbally. Scammers can manipulate email addresses and use language to make messages seem genuine, easily fooling people into making payments they shouldn’t.
2. Mismatched Items
There are several examples of mismatched items that could be cause for concern:
- Invoice items do not match the receiving report.
- Invoiced items are not accounted for in inventory.
- Discrepancies exist between an invoice and a P.O.
After receiving an invoice from a client or supplier, compare the account details against a P.O. or receiving report — all the information should be in sync.
Pro tip: It’s better to be safe than sorry! Contact the client or supplier directly via a known phone number or email address if there are discrepancies. Also, consider setting up a single point of contact with vendors and partners you pay regularly.
3. Missing Purchase Orders
Most legitimate invoices include a corresponding purchase order number. Per the Federal Trade Commission (FTC), if you receive merchandise that you did not order, you are not required to return it, nor should you pay any invoices for unwanted items. In addition, it is illegal for any vendor to send you unordered merchandise and then demand payment afterward.
This guideline also applies to goods or services like:
- Unordered phone directory listings
- Fake regulatory compliance charges
- Web domain renewals
- Phony membership dues to associations you don’t belong to
- Unordered office supplies and cleaning products
4. Unusual Invoice Volume
Many industries are cyclical or seasonal in nature, having low and high periods over time. Therefore, receiving an unusually high volume of invoices during an otherwise normal or slow business cycle could indicate invoice fraud.
5. Inflated Prices or Quantities
Scammers often submit fake invoices with inflated prices. Typically, the amounts aren’t inflated enough to raise suspicion, which makes them harder to spot. Criminals rely on volume, not margin, to get away with as many payments as possible.
Pro tip: Train AP staff about Benford’s law. Benford’s Law states that smaller numbers appear much more often as the leading numbers than larger numbers do.
- The number 1 shows up 30% of the time
- The number 2 shows up 17% of the time
- The number 8 shows up 5% of the time
- The number 9 shows up 4.5% of the time
If numbers start appearing more often than they should, it may be time to investigate.
6. Receipt of Inferior or Substitute Products
If you’ve received an order of merchandise that is either counterfeit, inferior in quality, or is a different product entirely, you may have been scammed.
How to Reduce Your Risk of Exposure to Invoice Fraud
Invoice fraud can be difficult to detect, hurting your customers and damaging your business. Guarding against common types of invoice fraud can be challenging, but consistently using the right tools and strategies helps protect your business, reputation, and customer relationships.
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