Fraud Tip of the Month

iStock_000008667569SmallBilling Fraud Schemes

Fraud of any nature can quickly drain company profitability.  Billing schemes account for 28.7% of all fraud and is one of the more common types of schemes we see in organizations. In smaller organizations, billing schemes are easy to pull off due to the lack of separation of duties or management oversight. The average time to detect a billing scheme is 24 months with an average loss of $150,000.

Types of Billing Schemes:

  • Shell Companies – A fictitious company set up as a vendor by a dishonest employee.  The employee submits invoices from this vendor to collect payment.  In a lot of cases, the person submitting the invoice is also the same person paying the invoice.
  • Pay & return schemes – An employee intentionally pays a vendor twice.  The employee then calls the vendor and requests that they send one of the checks back to them.  The returned check is then deposited into the employees bank account.
  • Personal Purchases – An employee makes purchases using the company credit card or submits bogus expense reports to be reimbursed.  This is very common as most managers and owners generally do not monitor expense reports and company credit card statements.

What to Look For:

  • Unfamiliar vendors
  • Vendors that have only a post-office-box address
  • Invoices from vendors who are not on the approved vendor list
  • Vendors with company names consisting only of initials. Many such companies are legitimate, but dishonest employees commonly use this naming convention
  • Vendor addresses that also match an employee’s address
  • Large billings broken into smaller payment

Prevention Tips:

  • Establish an approved vendor list
  • Conduct due diligence on new vendors to make sure they are legitimate
  • Review payments to vendors and look for abnormalities such as an excess in payments to one particular vendor
  • Require detailed receipts are turned in for all credit card purchases and expense report items
  • Separate duties so the employee entering invoices into the system is not the same person also paying the invoices.  If this is not an option due to staffing, than the manager should audit the accounts payable list monthly.
  • Conduct random audits of invoices paid, company credit card purchases and expense reports
  • Educate your employees on what to look for as they are your eyes and ears in an organization

Preventing fraud is a daily process and a commitment.  Its important that companies conducts fraud risk assessments and fraud check ups done periodically. Trust by verify so you do not become a victim of workplace fraud and theft!