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A Closer Look at Corporate Fraud: Part 2 (Duplicate Payment Scams)

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I am Craig Hannaford and welcome to my new blog series for Haywood Hunt & Associates, which takes a closer look at fraud in the workplace. I have been a Senior Investigator at Haywood Hunt since March 2019 focusing on commercial fraud, civil litigation support, investigative accounting, asset searches and miscellaneous problem solving.

I am the former head of the RCMP Commercial Crime Section and of the RCMP?s Stock Market Fraud Section. I am also a Licensed Private Investigator, a CPA (Chartered Professional Accountant) and a CFE (Certified Fraud Examiner). I have my Master of Science in Economic Crime Management and a Bachelor?s degree in Computer Science.

Duplicate Payment Fraud

In our continuing series examining frauds that target corporation, we will examine a scam known as duplicate payment fraud. Duplicate payments may not always be attributed to fraud.  In many cases, the duplicate payment may be caused by poor administration of a company’s master vendor file. Or a duplicate payment could be initiated through a billing error by the company who is owed the money.  These errors are often detected and usually reconciled through communication between the vendor and the customer.

However, in some cases, duplicate billing can be perpetrated by fraudsters who hope to swindle a customer.

If a vendor processes and receives a regular monthly payment from a customer, a fraudster either inside or outside the organization, may try and initiate the payment twice.  The second payment would be diverted to an account controlled by the fraudster.  In organizations with large amounts of transactions, this additional and unauthorized second payment by the customer may not be detected unless a detailed accounts payable audit is undertaken.  And if the unauthorized payment is discovered, the fraudster inside the billing company can claim it was an honest mistake and the appropriate account correction will be made. Once successful with this type of scheme, a fraudster will likely repeat and broaden the fraud to increase these ill-gotten receipts. 

So, how can a customer company protect itself from this type of fraud. 

  1. Have a comprehensive invoice/payment reconciliation process to confirm all invoices received match up with purchase orders.
  2. Ensure payments made are deposited into the authorized vendor account.  This can be done through an examination of deposits made and what account(s) they were deposited to.
  3. Perform data analytics on the “received invoice” database. Look for duplicate amounts, dates, etc.  Also, look for a change in account deposit information or other differences.
  4. Ensure any change to the payment account is well documented and authorized in writing by the customer company. 

Ongoing diligence is required to defeat this type of fraud.  The use of data analytic software can provide clues or “red flags” that something is amiss.  Data analysis of the master vendor file, invoice received file and the payment file should be done at least annually.  And don’t forget the “segregation of duties” mantra.  One employee should never be responsible for all the function in the payment or billing process.

If your business has been a victim of fraud or you would like to mitigate your risk, we can help. Contact us today for a free consultation.

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Haywood Hunt & Associates Inc. is pleased to announce the addition of Don Panchuk (BA MA CFE CRM) to our Corporate Investigations Division. Don served for 31 years in the RCMP, retiring as the Superintendent in Charge of the Integrated Market Enforcement Team in the Greater Toronto Area (GTA).