Invoicing Fraud
From FraudWiki
Invoicing fraud can take many forms and can be perpetrated by individuals both within and external to the organisation affected. The following details some examples.
Contents |
Internal Fraud
A simple example is an employee who has the authority to raise purchase orders will raise purchase orders for some fictitious company that they will have previously set up. The company then raises invoices against these purchase orders that will then get matched and honoured.
Internal fraud often leaves a trail:
- Various documentation will carry a forged signature.
- Unrecognised signatures
- Cheques drawn out of sequence
- Access to computer or premises at unusual times
- Returned cheques with alterations
- Use of staff bank accounts and/or addresses
Counter Measures
- purchase profiling - by profiling purchase patterns we can detect, for example, unusual quantities of a particular type of supply being ordered.
- supplier profiling - by profiling supplier invoicing patterns we can detect changes that may be indicative of fraud.
- whitelists - whitelists are used to reduce the incidence of false positives for trusted suppliers.
- staff details - use staff lists, payroll details to find patterns relating to invoicing details
External Fraud
An example of an external fraud is an employee working for a supplier of an organisation who registers a company with a very similar name to the company they are working for. They then issue invoices against known purchase order numbers with this name.
Counter Measures
- automated checking - precise matching and cross-checking
- also as per internal fraud
Double or Duplicate Invoicing
A supplier sends in an invoice, then sends it again with a subtle change so that it may not be noticed that it is from the same supplier.
Large organisations that employ many itinerant workers, directly or through agents, will receive invoices for hours worked. Authorisation of an invoice is often not supported by a purchase order and there are many ways to exploit this. For instance some cultures, eg Hungary, put their surname first and their given name last. So one common form of duplicate invoicing in these circumstances is to raise two invoices, one for each name order.
Another example is multiple invoices against the same purchase order.
Counter Measures
- name matching - fuzzy name matching, rule-based matching
- supplier profiling - supplier category profiling
- also as per internal fraud
Purchase Order Value
The Invoice value is much greater than the purchase order value. It may simply be ten times the purchase order value, which can easily go unnoticed.
Counter Measures
- automation - automated cross-checking
Unknown Vendors
Organisations often receive invoices from unknown vendors for fictitious work or goods. The senders of the invoices may have sent the same invoice to hundreds of organisations in the hope that just one busy accounts department lets it slip through.
Counter Measures
- scheme matching - known fraud scheme matching
- as per internal fraud
Unsolicited Goods
Goods are delivered and signed for and then an invoice is sent. The sender will often have some knowledge of the organisation’s regular supply of consumables or current projects.
Counter Measures
- scheme matching - known fraud scheme matching
- as per internal fraud
Low Value Invoices
Many organisations try and manage the workload associated with invoices by operating much stricter authorisation procedures for invoice values above a threshold. Invoices that are received whose value is below this threshold are much more likely to get authorised and a potential fraudster will exploit this information, which may be gleaned from an employee or by sending test invoices or a disgruntled employee who may have already left the company.
Counter Measures
- purchasing patterns - inappropriate frequency of invoicing for category of supplier.
- as per internal fraud
Under or Over Invoicing
This is not really a type of invoicing fraud, more a type of tax fraud. Under-invoicing is used when importing goods from a foreign supplier. An arrangement is made whereby the supplier raises an invoice for the goods with a value much less than the agreed price. By artificially lowering the documented value of the goods less import duty is payable. The difference is then paid via a different route and sometimes the saving in import duty is split between the importer and the supplier.
Over-invoicing is a means of exploiting exchange rates and export subsidies.
Counter Measures
- purchase profiling - by profiling purchase patterns we can detect, for example, unusual quantities of a particular type of supply being ordered.
- supplier profiling - by profiling supplier invoicing patterns we can detect changes that may be indicative of fraud.
- whitelists - whitelists are used to reduce the incidence of false positives for trusted suppliers.
- staff details - use staff lists, payroll details to find patterns relating to invoicing details
