Invoice fraud and vendor fraud are widespread, costly, and sometimes difficult to prevent since they take advantage of busy accounts payable departments. Here are the most common types of fraud in this category and some steps you can take to protect your organization.

How common is invoice fraud?

In March 2019, a fraudster from Lithuania pleaded guilty to wire fraud. This criminal stole a total of $123 million from Google and Facebook by sending fake invoices to the tech giants.

According to the FBI, the amount of money criminals have been trying to extort by sending fraudulent invoices has increased by 136% between 2016 and 2018. In 2019, 81% of businesses were targeted by payment fraud, and 75% were targeted by business email compromise schemes.

In fact, businesses have lost a total of $12.5 billion to vendor and invoice fraud over the past five years, and it’s an issue that affects everyone since 92% of companies report being targeted via email attacks.

Scammers target businesses with busy accounts payable departments by submitting fake invoices and payment requests or by impersonating legitimate vendors. Sometimes, employees work together or with third parties to create and pay these fake invoices.

Invoice fraud and vendor fraud are widespread, costly, and sometimes difficult to prevent. Take a look at the most common types of fraud in this category and some steps you can take to protect your organization.

What are the types of invoice fraud and vendor fraud?

Being aware of common schemes makes them easier to recognize. The following schemes are frequently used by criminals who commit invoice fraud or vendor fraud, but keep in mind that this list isn’t exhaustive:

  1. Criminals impersonating vendors. A fraudster commits account takeover fraud to send emails from a legitimate email address one of your vendors uses or relies on social engineering techniques to pose as a vendor. The fraudster will send you a payment request that looks like a legitimate invoice, but money will be wired to their account.
  2. Fake invoices. Some fraudsters will send emails with spoofed invoices. They might use information that matches one of your vendors or bill for goods and services that don’t raise any red flags, like office and printing supplies.
  3. Invoices for inexistent services. A common invoice fraud technique takes advantage of busy accounts payable departments by submitting invoices for goods or services that were never requested or received.
  4. Double payment. An accounts payable employee who falls for a double payment scam will end up paying the same invoice twice. Fraudsters can access information about old invoices through account takeover or by getting internal help, but some merchants might commit fraud by sending the same invoice twice intentionally.
  5. Insider threat. An employee working with accomplices can send a fake invoice and ensure it gets paid without raising any red flags.
  6. Collusion. Two or more employees working together can implement complex schemes to create and pay fake invoices. Collusion can result in colossal losses if employees are able to take advantage of the same vulnerabilities repeatedly.
  7. Vendor fraud. This type of fraud can be difficult to detect. Some fraudulent merchants will send invoices for goods or services you requested and received but will modify payment terms or prices in their favor.

What are strategies for vendor and invoice fraud prevention?

Invoice fraud is on the rise this year. COVID-19 is making it harder for accounts payable departments to communicate and share concerns about invoice requests since a lot of employees are working from home.

You can’t afford to be complacent about invoice fraud prevention, especially since the economic shock linked to the pandemic is pushing more criminals to commit fraud and could motivate fraudsters to try to steal larger sums.

You can implement the following strategies to reduce the risks of falling victim to one of these common invoice scams:

  • Document everything. A well-organized accounts payable process can make you less likely to fall for double payment schemes, and employees can cross-reference invoices and payment requests with existing purchase records.
  • Internal controls. You can fight insider threats and collusion by looking for attitude changes in employees, creating a reporting system, monitoring who has access to invoice and payment methods, and asking employees to document payments and purchases. Your organization’s culture and the creation of deterrents for fraud can play an important part in preventing fraud.
  • Awareness and education. The more employees know about common fraud, the less likely they will be to pay fake invoices.
  • Vendor directory. You can fight vendor fraud by creating a vendor directory to easily access contract terms and the prices you agreed to.
  • Due diligence. It’s important to complete a due diligence process when choosing a new vendor. Fraud.net’s Know Your Vendor (KYV) corporate identity services can help you avoid merchants who have committed fraud in the past.

Protect yourself from fraud and phishing with an email shield

You can take an additional step in vendor and invoice fraud prevention by stopping threats from reaching your mailbox with an email shield.

Fraud.net offers a free email AI you can use to filter phishing emails and fake invoices. You will receive alerts and risk scores and can set customizable rules for the filter features. You can use the contact verification feature to ensure that wire requests and invoices come from legitimate points of contact.

Using this free email AI is a simple step you can take to help your accounts payable department assess which emails are legitimate and avoid falling for the common types of vendor fraud and invoice fraud discussed above.

Our email AI supports Outlook 365 integration, and you can unlock additional features with a purchase if you need more protection. Contact us today for more information.

 

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