Invoice fraud – a real threat to your business

22 January, 2015
This article has been reviewed and is up to date as of 23 August, 2017

This type of fraud is now very common and any organisation that pays invoices is vulnerable to it. So what is invoice fraud and how can you minimise the risk of your business becoming a victim of it?

 

What is invoice fraud?

Invoice fraud takes place when a criminal impersonates a supplier and deceives the customer into making payment of the supplier’s genuine invoices to a fraudulent third party account instead. Criminals tend to target higher value payments. Criminals manage to be convincing in their impersonation as they gather information about the relationship between the supplier and customer by various means including:

 

  • The hacking of either party’s email account to intercept correspondence relating to the payments due and to obtain the contact details of the person at the customer organisation who deals with making the payments.
  • Obtaining information via a dishonest insider within either organisation, or the insider being the criminal themselves.
  • Posing as a representative of the customer by using an email address very similar to that of the customer (e.g. .org instead of .co.uk) to request from the supplier a copy of any outstanding invoices and details of the supplier’s genuine account details.
  • Extensive research of publically available information relating to either party.
  • The interception of post.

 

Once the criminal has the necessary information they will then pose as the supplier and make a formal direction to the finance team of the customer to make payment of invoices to a ‘new’ fraudulent account instead of to the supplier’s ‘old’ genuine account. This direction is usually made by email for speed and may attach a formal looking letter impersonating the supplier’s letterhead and may include an amended invoice. The sophistication of the forgery and deception will vary but in many cases the customer simply does not take the time to check that the payment redirection is a legitimate request from the supplier and goes ahead with a payment to the fraudulent account.

 

It is important to note that even if payment has been made by the customer in good faith to a third party, this does not absolve the customer from its contractual liability to still make payment to the genuine supplier.

 

Often the customer will not become aware of the fraud until the supplier continues to chase for payment of the invoices. At that point recovery of the funds from the fraudulent account is often very difficult because they are likely to have been quickly transferred to other accounts, possibly abroad.

 

How to protect your business

  • The key to prevention is to make sure that all staff are aware of this type of scam and of your procedures to help identify and prevent them. In particular ensure that staff who pay supplier invoices and who have the authority to change supplier details are vigilant.

 

  • Always check with suppliers any out of the blue changes to financial arrangements like the account to which payment is to be made by contacting the supplier using the established contact details which you have on file or from its website. It is best to do this via two methods such as email and telephone in case one has been hijacked by the fraudsters to check that the request has come from the genuine supplier.  It is best to establish a designated point of contact with suppliers to whom regular payments are made so that all invoice issues can be raised with this person.

 

  • It is worth being extra vigilant for payment of larger invoices by contacting the supplier in advance of making payment to ensure that payment is made to the correct bank account.

 

  • Scrutinise every invoice received as there may be subtle variations in logos, account details, telephone numbers and email addresses. Suspicious invoices can be compared with those you know are genuine.

 

  • Consider what information your business makes publically available on its website or by other means and whether it is really necessary to publish this information given that it is also available to fraudsters. 

 

  • Never leave sensitive information such as invoices unattended in your office or on your desk.

 

  • Once payment of an invoice has been made it is good practice to inform that supplier of the details of the payment made, including the name of the beneficiary bank and the last four digits of the account number to which payment was made.

 

  • Ensure your computer system and email account are sufficiently secure and that your antivirus software is up to date.

 

Action to take where funds have been paid out as a result of a scam

  • Contact your bank and the beneficiary bank immediately so that they can attempt to prevent the dispersal of the funds.

 

  • Contact the police to report the fraud.

 

  • If the amount of money involved is significant seek immediate legal advice about whether a freezing injunction could be obtained. This is a court order freezing the account into which the monies have been paid to prevent dissipation of the funds. It may also be possible to obtain a court order that requires the bank to disclose information about the holders of the account and to allow the funds to be traced.

 

  • Consider whether you have an insurance policy which may cover the scenario. However, be aware that insurance companies are being inundated with claims of this type at present and are quick to reject claims on a strict interpretation of the policy terms. Most policies will only cover the criminal actions of a member of staff in certain scenarios.

 

  • Contact your supplier to inform them of what has happened to explain the reason for the delay in payment being made to them. This may delay them from taking legal action against you to recover the debt whilst you investigate your options and the likelihood of recovering payment from the fraudulent account.

 

  • Investigate how the problem has arisen and how your policies could be changed to prevent a similar situation in the future.