Invoice fraud and how to avoid it

Read on as Pagero's Chief Information Security Officer, Christer Wejke, offers a deep dive into the complex world of invoice fraud. He shares invaluable insights that can help individuals and businesses alike spot and defend against fraud and cybercrime.

Invoice fraud is a deceptive method where scammers send fake or altered invoices to unsuspecting recipients. Designed to appear genuine, these invoices often imitate the look and feel of legitimate payment requests. The goal is straightforward: to trick the recipient into paying for goods or services they never received or into overpaying for those they did.

While businesses are a frequent target due to their volume of transactions, no entity is immune. Schools, charities, local councils, and unsuspecting individuals have all been victims of this ploy. The implications of falling for such schemes are multi-faceted. Beyond the immediate financial losses, which can be significant, there's the potential damage to trust and reputation. For organisations, it can lead to strained relationships with partners or stakeholders. Individuals, on the other hand, may feel violated or distrusting, hesitant to engage in future transactions. And across the board, there's the looming threat of legal repercussions or further attempts at deception. The evolving nature of cybercrime and fraud underscores the need for constant vigilance and proactive measures to combat it.

In an age of rapid globalisation and intricate transactions, challenges surrounding deceptive practices like invoice fraud have escalated. Traditionally, paper invoices, due to their tangible nature, have been prone to manipulations by fraudsters. They can be intercepted, altered, duplicated, or even fabricated from scratch, presenting various avenues for deceit.

While technological advances have brought about digital solutions that offer safeguards against many of these traditional vulnerabilities, the transition isn't universal. Many businesses still rely heavily on paper-based processes, leaving them exposed to the fraudsters evolving tactics Moreover, unexpected global events, such as the COVID-19 pandemic, can cause disruptions, further making these businesses more susceptible, as they often have to prioritise immediate needs over stringent checks

Invoice fraud manifests in various shapes and forms, each tailored to exploit different vulnerabilities in a business's invoicing processes. Awareness of these methods is the first step in prevention. Here are the most common techniques used by fraudsters:

• Duplicate invoicing: A single invoice is sent repeatedly, banking on oversight for multiple payments.
• False invoicing: Companies receive invoices for non-existent goods or services.
• Alteration of existing Invoices: Real invoices are modified, often changing bank details, to misdirect payments to fraudulent accounts.
• Phishing attacks: Scammers impersonate legitimate vendors, seeking payments through deceptive means. This can include creating fake email addresses that look almost identical to the ones from your suppliers (for instance, by altering just one letter) to make it seem that the payment is being requested from a legit, trusted email address.

Spotting fake invoices requires careful attention and alertness. However, there are certain patterns and discrepancies that can help you uncover invoice scams. Keep a look out for these red flags:

• Being approached by unfamiliar vendors could be a potential red flag.
• Invoices littered with spelling mistakes or grammatical errors often point to deceit.
• Spotting inconsistent company logos or manipulated banking details on invoices.
• Unsolicited, high-pressure demands for quick payments, sometimes accompanied by higher-than-usual discounts for prompt payment

Falling victim to invoice fraud can have extensive and lasting consequences. From the immediate financial impact to the potential long-term damage to reputation, here's what's at stake:

• Businesses may incur crippling financial losses that can jeopardise operations.
• Trust is compromised, which can sever long-standing business ties.
• Legal entanglements can arise, leading to fines and tarnished reputations.
• Internal organisational issues, such as low staff morale among the team that fell for the fraud.

Navigating the intricate labyrinth of invoice fraud demands a mix of technological strength and human insight. It's a balancing act that, when mastered, forms a powerful shield against harmful intents. Here are some steps to help strengthen your defences:

Robust invoice verification: The initial line of defence is a comprehensive invoice verification system. By methodically scrutinising every invoice and cross-referencing with corresponding purchase orders or delivery receipts, companies can identify and counter suspicious requests.

Digital tools for invoice fraud detection: Today's technology offers tools that provide real-time monitoring and automatic anomaly detection. Incorporating digital services into your operations can be an effective way to ensure that only authenticated invoices enter the payment cycle, bolstering invoice fraud prevention measures further.

Continuous staff training: As the tactics of fraudsters evolve, so must our countermeasures. Periodic workshops and training sessions empower staff with the knowledge to identify emerging threats and adapt accordingly.

Information security: Regular data backups and updates aren't just about data preservation; they are your bulwark against threats like ransomware. Maintaining a clean, uncompromised dataset is pivotal in any financial operation.

Multi-tiered approval system: For significant transactions, a multi-pronged review mechanism ensures multiple checkpoints. This not only establishes accountability but adds layers of scrutiny that fraudsters find difficult to bypass.

Adopting modern technologies can offer significant advantages. Among these innovations, e-invoicing stands out as a powerful ally against invoice fraud.

Enhanced verification: E-invoicing systems are equipped with automated verification processes. They can instantly check the authenticity of an invoice against a predefined set of criteria, ensuring only legitimate invoices are processed.

Spend patterns: By digitalising your invoice handling, your teams unlock the possibility to collect and easily access data, identifying spend patterns that are much harder to notice when you are dealing with piles of paper. This way, deviation from the usual patterns is easier to detect and get a closer examination.

Digital audit trails: Each e-invoice comes with a digital trail, capturing every step from creation to payment. This traceability makes it much harder for fraudsters to interfere undetected and provides a comprehensive history that can be invaluable during audits or investigations.

Streamlined approvals: With e-invoicing, approval workflows are automated and standardised. It's much harder for a false invoice to slip through the cracks when there's a consistent and transparent review process in place.

Encrypted transactions: E-invoices are transmitted securely, with advanced encryption technologies ensuring data remains confidential and secure. This robust security diminishes the risk of interception and alteration by malicious actors.

Reduced human error: Automated e-invoicing systems minimise manual data entry, significantly reducing the chance of human error—a common entry point for fraud.

Real-time monitoring: E-invoicing platforms often provide real-time monitoring and alerts for suspicious activities, allowing businesses to act swiftly if anomalies arise.

While no system can claim to be entirely foolproof, e-invoicing offers layers of security features that make it a formidable deterrent against fraud. By making the switch, businesses aren't just opting for efficiency; they're taking a significant step towards safeguarding their operations and reputation from the threat of invoice fraud.

Discovering that you've become a victim of invoice fraud can make you feel betrayed, vulnerable, and cause a lot of stress. Remember, though, that you're not alone in this, and there are proactive steps you can take to navigate through this challenging time:

Reach out to authorities: By promptly reporting to the appropriate authorities, you not only help yourself but also other potential victims.

Contact your bank immediately: The sooner you inform your bank, the higher the chances of stopping unauthorised transactions or even recovering lost funds.

Strengthen your protocols: In the aftermath, when things start to settle, it's a good time to reflect and review. Reinforcing your invoicing protocols now can safeguard your business in the future.

Seek expert guidance: You don't have to navigate this alone. Cybersecurity professionals are there to support and guide you. They can provide tailored solutions and advice to ensure such incidents don't recur.

Remember, it's okay to seek support and lean on others during such times. With the right measures, you can bounce back stronger and more resilient than before.

Over the years, the landscape of invoice fraud has seen a significant shift, transitioning from simple paper-based manipulations to sophisticated digital scams. This evolution underscores the relentless challenges confronting businesses and individuals alike. Innovations such as e-invoicing have emerged as powerful tools, offering protective layers for transactions and significantly reducing manual errors.

The main lesson from observing this landscape is clear: the foundation of effective protection lies in continuous awareness, vigilance, and adaptation. As we navigate the complex channels of modern business, it's reassuring to recognise that as the scammers' tactics evolve, so too do our defensive strategies and instruments. By making informed decisions and encouraging a culture of ongoing education, we can protect our assets, maintain our reputation, and guarantee the integrity of every transaction.

This text was originally published 6 November 2020 and last updated 27 October 2023.