CPA, CFE Powerful Accounting LLC
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How to Prevent Billing Schemes

Mar 19th 2019
CPA, CFE Powerful Accounting LLC
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employee fraud
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In what seems like no time, we’ve reached episode six of my six-part “Fraudcast” series featuring the wonderful Stephen King.

For those of you who are new, Steve is part of the Client Accounting Services firm GrowthForce and the author of The CEO’s Guide to Reducing Fraud. Also, you can catch up on the first five podcasts by visiting “The Fraudcast” link on my homepage.

During this episode, Steve and I discussed billing fraud, which he described as an employee creating a fake invoice or inflating an existing one to submit and get paid.

Billing schemes are scary, everyone. They go an average of 24 months before being detected, resulting in massive financial losses for small business owners. Check out page 15 of The CEO’s Guide for more details.

 If you’ve been with us from the beginning, you probably know what I’m going to tell you next—there are protective measures to be taken against fraud. As Steve noted, most people think they will never be scammed, and then they are. Non-profits and religious organizations, he continued, often get hit by billing fraud because of not putting basic internal control systems in place. And, while for-profit businesses have various “levers to pull” if something goes wrong, non-profits rely heavily on donors for income. On top of that, it might be difficult to adjust prices at service-oriented establishments.

Steve shared a story of an outsourced CFO employed by a non-profit who committed billing fraud. When he submitted his bill, instead of doing it for once a month, he sent and dated it for every three weeks. Because he shortened the time between invoices, the non-profit ended up paying 25 percent extra to the CFO.

In another case, an operations manager was responsible for the largest part of her company budget and essentially ran the business for the owner. She was secretly submitting invoices with an imaginary company name and pocketing $3,500 a month from it. That’s $42,000 a year.

Referencing the ACFE Report to the Nations on Occupational Fraud and Abuse, Steve emphasized that these fraudsters start low-scale. At first, they’ll submit an inexpensive made-up invoice or a real invoice with only a small amount added, for example.

To help catch unsuspicious scamming early on, we reiterated the need for systems of internal control within a business. You’ll find this defense recommendation on page 32 of The CEO’s Guide, alongside others. There’s a great crime assessment portion that walks you through preventative steps. Steve argued that every duty should be handled by three people: one employee authorizing the transaction, one employee recording the transaction and one employee doing the reconciliation or checking on the account.

Separation of duties is an important business tactic. Don’t let the person who receives the payment be the person who controls the invoice. Additional precautions include locking down prior invoice periods and assigning specific usernames and passwords to employees.

Having reached the end of this series, we’ll be hosting a wrap-up episode to revisit internal controls, breaking down tips provided in The CEO’s Guide. Alongside my podcasts, the book serves as a valuable resource for those who want to become educated, as does its coinciding webinar available on the GrowthForce site.

Remember: protecting your business now could be the difference between its success or failure in the future. Finally, thanks so much again to Steve for collaborating with me in the good fight against fraud, and I hope the rest of you feel inclined to join us.

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