As businesses continue to digitise their operations and embrace online transactions, invoice fraud has become an increasingly common issue that companies have to deal with. This type of fraud involves criminals intercepting and manipulating invoices or creating fake invoices to steal money from unsuspecting organisations. The Association of Certified Fraud Examiners (ACFE) estimates that businesses lose 5% of their revenue to fraud each year, and invoice fraud is one of the most prevalent forms of fraud and costs business millions.
Invoice fraud can take many forms, but some of the most common include:
- Fake invoices: Cases where invoices are utilised for goods or services that were never provided and are sent them to businesses with the hope of receiving payment.
- Overcharging: Cases where invoices are manipulated to overcharge businesses for goods or services that were provided.
- Phishing scams: Cases where invoices are utilised through fraudulent emails that look like they are from legitimate vendors requesting payments to be made to fraudulent accounts.
- Social engineering: Cases where an individuals impersonates vendors or company employees to convince businesses to make payments to fraudulent accounts.
The consequences of falling victim to invoice fraud can be devastating for businesses. It can result in significant financial losses, damage to a company’s reputation, and legal repercussions. Therefore, it is essential for businesses to take proactive measures to prevent invoice fraud.
One effective way to prevent invoice fraud is to implement systems such as an Accounts Payable and invoice automation software. Such software automates the invoice processing workflow and minimises the risk of human error, which is often exploited by fraudsters. With an automated system, businesses can also easily track and verify invoices and quickly identify any discrepancies. The easy steps to achieve that are highlighted in the article 10 tips for advanced Accounts Payable automation
Automated systems that use artificial intelligence (AI) can also help detect fraudulent activities. By using machine learning algorithms, an AI-powered system can identify suspicious patterns and flag any invoices that don’t meet predefined criteria. Such a system can also learn from past fraud attempts and adapt to new tactics.
Additionally, fraud can be prevented by using a variety of digital tools. These tools include accounting software, electronic data interchange (EDI), payment gateways, electronic invoicing (e-invoicing), anti-fraud software, two-factor authentication (2FA), blockchain technology, document management software, audit software, and data encryption.
Blockchain technology, in particular, can be used to create a secure and transparent system for managing financial transactions. By providing an immutable record of all transactions, blockchain technology can help prevent fraud and improve the efficiency and transparency of accounts payable processes.
Another way to prevent invoice fraud is to establish clear procedures for invoice processing and payment. This includes verifying the authenticity of invoices, confirming payment details with vendors, and requiring multiple levels of approval for significant payments. Businesses should also regularly monitor their accounts and reconcile their records to identify any irregularities.
Some of the recent fraud cases in Australia are:
- In 2020, a former employee of a Melbourne-based advertising firm was sentenced to four years in prison after stealing more than AUD 8.5 million from the company over a period of six years. The fraud involved the creation of fake invoices for services that were never provided.
- In 2019, a Perth man was sentenced to 15 months in prison for his role in an invoice fraud scheme that involved creating fake invoices for IT services that were never provided. The fraud resulted in losses of over AUD 200,000 for the victims.
- In 2018, the Australian Securities and Investments Commission (ASIC) warned businesses about a new type of invoice fraud that involves criminals intercepting invoices and changing the payment details to redirect payments to their accounts.
On a wider frame, invoice fraud poses a significant risk to businesses as they continue to digitise their operations and embrace online transactions. The consequences of falling victim to fraud can be devastating for a company’s finances and reputation. To prevent invoice fraud, businesses can implement AP and invoice automation software, use digital tools such as anti-fraud software, two-factor authentication, and blockchain technology, and establish clear procedures for invoice processing and payment.
However, manual processing of invoices can also leave businesses vulnerable to fraud due to human error, and fraud can occur due to the discretion of managers and employees who have access to company accounts and payment systems. Therefore, businesses must have robust internal controls and procedures in place to prevent and detect fraud, regardless of the nature of the invoicing and payment processes used. By taking proactive measures to prevent fraud, businesses can protect themselves from financial losses, reputational damage, and ensure the integrity and transparency of their financial processes.