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Fraud- Avoiding Billing Scams

February 17, 2015

Common scams and how management can combat them.

There are several schemes that business owners should be on the lookout for. Even after careful obedience to rules and regulations, a business is not completely invincible to fraud. Billing scams are the most common type of fraud, and learning to avoid issues of this sort is vital to the success of your organization.

How do billing scams happen?

Billing scams occur when an employee submits fraudulent invoices in order to receive unauthorized compensation. Unfortunately, most schemes involve leaders investing too much trust in their employees.

Common billing scams include:

Shell companies: Most scammers will disguise themselves under a fake identity and bill goods and services under this “shell company”. Products and services can be delivered with excessive mark ups and the proceeds are often diverted directly to the employee.

Pay and return: This scam involves an employee deliberately causing your nonprofit to overpay a vendor. Once the vendor realizes the overpayment and returns the excess funds to your company, the employee will embezzle the refund.

Personal purchases: Some fraudsters order personal merchandise using the company’s funds. The employee can then keep the products or return them for a cash reimbursement.

4 ways you can combat billing fraud

Though billing scams involve devious planning that might not be obvious to you, there are several red flags that will show you an employee may be up to no good. Be sure to:

  1. Look out for discrepancies in your data- Take note if there are transactions occurring more often than you had expected, with vendors that you have not heard of, or do not remember purchasing from. Look at when transactions occur, are there purchases being made at unusual times of day or during seasons where transactions usually do not occur?
  2. Check your documentation- Make sure there are no missing documents and check to be sure that documents have not been adjusted without your knowledge. Check the names and addresses of vendors- make sure they do not match employee names or addresses.
  3. Develop controls that will limit exposure to fraud- Be sure to have a control system in place that outlines ethical boundaries and the consequences of going against these policies.
  4. Know your employees- It is important to trust your employees, so make sure you know them well enough to give them purchasing responsibilities. Look out for employees who have had problems with the law in the past, as well as employees who seem to be living beyond their means. Monitor employee relationships with vendors- if they seem to be unusually close, you could have a problem. Employees with personal issues of addiction, divorce, family, etc, could unfortunately be a target as well.

Establishing a fraud risk management program could be effective in preventing these unethical practices. It is ultimately the duty of management to prevent and combat billing fraud.
To learn more about fraud and ways of avoiding it, contact us.

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