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Every organisation, big or small, is vulnerable to invoice fraud. Invoice fraud is a present threat for the accounts payable teams across the globe. Even a few fake invoices could result in thousands, if not millions, of losses for an organisation.
Invoice fraud happens when the fraudsters send fake invoices to businesses with strong accounts payable processes to extract money from them. They target companies based on their location and size of operations and then narrow down on the organisation’s suppliers like office supplies, food vendors, cleaning services, etc.
With all such information, these fraudsters create phoney invoices on behalf of these suppliers that look legitimate and send these invoices to the targeted organisation’s accounts payable department requesting the release of payment.
Duplicate and Fake Invoices – Fraudsters sneak in duplicate or fake invoices both within and outside the business. These invoices are generally of meagre amounts, which makes them difficult to identify and track. These fake invoices usually involve compliance services, food bills, office supplies, and subscriptions.
Shell Companies – Invoicing through shell companies is one of the prevalent forms of invoice fraud. These companies are business entities that don’t have any physical presence except their mailing address. Fraudsters, mostly disgruntled employees, use fabricated details to collect disbursements from their false billings.
Phishing – Phishing schemes occur when the fraudsters trick an organisation’s accounts payable department into transferring funds by pretending to be a legitimate company. They typically duplicate the contact details, such as the email of the authentic supplier, which they use for sharing fake invoices with the target companies.
Over or Mischarging – Some vendors include fake information in their invoices concerning numbers of personnel employed or hours worked for inflating the invoice value.
Fake invoices cause major loss of revenue for the government and result in misuse of taxpayer’s money; hence the government has laid laws to curb the same. Both the supplier and the receiver of such fake invoices are liable to a 100% penalty of Input Tax Credit availed or GST evaded. Also, the brokers and practitioners involved in facilitating such transactions will be held liable for a penalty of 100% of the GST amount.
It may be noted that in addition to the penalties, there’s imprisonment as per the provisions laid down in the GST Act for Invoice Fraud for a term that could extend up to five years.
While organisations today have started prioritising the prevention of invoice fraud, knowing the potential ‘red flags’ holds the key to detecting them. Listed below are some of the ways to mitigate the risk of invoice fraud:
Preventing invoice fraud is quite frustrating, but employing the below tips will help reduce the chances of your organisation falling victim.