So if you’re a company owner or manager and you want to prevent fraud, one of the most common areas you’ll find evidence of fraud is in fake payable invoices being paid from your company. So how do you discover those?
Well, the most common method of corporate fraud is fake payable invoices and this requires that somebody sets up a fake business entity to receive these checks. It’s usually employee activity, somebody in your company that knows how payables are being processed, and how checks are being written. So they have some knowledge of how to have those invoices presented to the company. It could be a client or vendor but it’s usually an employee.
The first place to start is the addresses that are appearing on your invoices. Look to match them up with first of all employees, if an address on the invoice is the same as your employee HR file, that’s a red flag. Although, most employees who do this will have a separate address.
Then you want to look at the addresses on your payables to see if are they going to a PO box. Are they going to a mailbox-type store or a UPS store? It doesn’t necessarily mean that it’s fraud because many small companies use these mail locations to receive their mail, but it’s a place to start. Also, audit your new vendors 60 days after they’ve been onboarded to make sure that they’re legitimate.
Then take a look at the endorsements on the back of your checks. Are they being stamped as a company normally would or are they being hand signed? And maybe signed being over to someone else? Verify the EIN numbers or the tax ID numbers of your vendors to make sure they’re associated with the business and not a person. You can also take a look at the names that are on the checks with your secretary of state records to make sure these are legal entities, whether it’s a DBA and LLC or a corporation to make sure these are legitimate companies you’re writing your checks to.
These types of very basic audits will eliminate 80-90% of potential fraud from your company to have no money being diverted. We’ve seen examples where companies have lost hundreds of thousands of dollars over the years, sometimes over a million dollars because fake invoices are being presented. And the way that they’re being brought into your company matches the acceptable flow of incoming mail of invoices being approved by managers, to where that money freely goes out of your company that could be used for other more productive things.
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