In March 2019, the Department of Justice announced the indictment of a Lithuanian man who used invoice fraud to steal $123 million from Google and Facebook. He managed to execute the fraud through business email compromise: he posed as trusted vendors and sent invoices for services that never took place.
Invoice fraud is on the rise. According to the FBI, email fraud increased by 136% between December 2016 and May 2018. While Google and Facebook managed to recover their funds, the majority of businesses are not so fortunate, and sadly, small-to-medium-sized businesses are often targeted because scammers know that they don’t have the same resources to allocate to combating fraud as larger companies.
A recent Lloyd’s Bank survey found that only 20% of companies review invoices before paying them, and 37% of businesses don’t have an invoice-fraud-prevention process in place.
While invoice fraud is on the rise, the payments landscape is changing too, with faster payments and peer-to-peer payments becoming increasingly popular alternatives to traditional wire transfers.
Traditionally, payments take time to clear the architecture of the Automated Clearing House Network (ACH), also known as direct deposit, direct pay, or electronic check. Rather than processing individual ACH transactions as they’re initiated, banks instead batch transactions throughout the day and then they are processed at once. If a request is made on a non-business day such as a weekend or bank holiday, the payee must wait until the next business day for processing. International payments take even longer.
Instant payments are riskier than ACH transactions because banks can only run a limited number of fraud tests on rapid transactions.
And still, their popularity continues to grow. This is because, although instant payments carry additional risks, the ease and convenience of rapid payments hold massive appeal.
Whether your organization has adopted instant payment to pay your invoices and employees or not, you would be wise to take stock of what fraud prevention measures you have in place—if any. Banks are generally not required to reimburse payments to fraudsters if the payments were willingly made, so the onus is on businesses to ensure that due diligence is done to prevent the payment of fraudulent invoices and expense claims, instead of relying on banks to spot discrepancies.
Below we’ll discuss how implementing airtight approval workflows and accounts payable (AP) automation can significantly reduce your business’s risk of payment fraud.
The Fundamentals of Reducing Payment Fraud
Constant vigilance is the key to reducing payment fraud. But what does that really mean? Let’s take a closer look at the steps you can take to prevent invoice fraud from happening to you.
This can only be achieved through meticulous information management and assiduous fact-checking.
Purchase orders must be matched against invoices to identify discrepancies.
Always Verify the Authenticity of the User
The most important step you can take to prevent fraud is ensuring that your accountants can always verify the identity of the vendor, both when adding new vendors to your trusted supplier database and when processing each individual invoice.
Your procurement process should involve a comprehensive vendor onboarding workflow during which each supplier furnishes you with their company registration information, contact details, banking information and more. New vendors should be subjected to a thorough vetting process before any money changes hands.
In the event of changes such as staff changes, updated banking details or contact information, you should have a multi-stage information change request workflow in place to verify that the change has really been authorized by your vendor’s management and isn’t a fraudster pretending to be them.
You can use electronic signatures to further secure your accounts payable processes. During your onboarding process, you should also verify your vendors’ identity and capture their electronic signature in your webforms software. This way, only authenticated users will be able to send you signed invoices, just like only pre-specified authorized internal stakeholders will be able to approve purchase orders.
Always Verify the Authenticity of the Invoice
Verifying the authenticity of each invoice is just as important as verifying the identity of the sender, as it’s not unheard of for legitimate vendors to send fraudulent invoices or even make honest mistakes such as adding an extra zero to an invoice by accident.
Each invoice should be matched against the corresponding purchase order to ensure that there are no discrepancies—and that the purchase order actually exists! Aside from the total price on the purchase order and invoice corresponding, each should bear a matching unique reference number to make the invoice more difficult to falsify.
You can also use automated approval workflows to make your procurement process far more secure. We’ll take a closer look at this in the next section.
Mitigating Accounts Payable Fraud Exposure With Automation
Automation is essential for finance departments to mitigate their fraud exposure because it enables them to work more efficiently.
With frevvo’s procurement automation software, there are a number of defenses against invoice fraud:
- The invoice can be generated in response to the purchase order, meaning both documents are present when they reach the person responsible for releasing payment.
- The workflow can include approval stages, meaning a manager needs to sign off on purchase orders. You can also enforce a rule dictating that purchase orders and invoices exceeding certain amounts automatically get routed to the VP or CFO for approval.
- You can create rules to automatically check the information included in invoices against the information on file. If there’s a discrepancy—whether it’s in the amount invoiced for, or the bank account information cited on the invoice—the system will flag it automatically so that you can investigate.
- You can make certain fields on your forms mandatory, so that incorrect or missing information prevents forms/invoices from being submitted in the first place.
- You can set form sections to lock upon signature, using advanced encryption to ensure that forms such as service level agreements and purchase orders can’t be tampered with.
- You can use a connector API to plug in AI capabilities to continuously analyze your workflows to identify inefficiencies and irregularities.
- With workflow automation, there’s a built-in audit trail, giving you far greater visibility into your transactions.
In addition to the security benefits of automating your AP workflows, you’ll also make your finance team’s lives much easier by reducing the amount of manual work like data entry they have to do. As a result, your payments won’t just be safer—they’ll be faster too.
Why not give it a try with frevvo’s 30-day free trial? For more information on how you can streamline your payment processes while upgrading your anti-fraud protections and gain an advantage over the competition, be sure to read our eBook Streamline Your Procurement Process: A Complete Guide.