Saturday, February 25, 2012

Invoicing Scams

Do people pay bills they don't owe?  Yea, it happens all the time.

Invoicing scams have been around a long time.  They rely on the disorganization of people and companies to generate income from nothing.  Sometimes they use insiders to perpetrate fraud.

For a small- to medium-sized company, the scam works like this.   An invoice arrives, addressed to "accounts payable" for some office supplies.  It may be stamped "overdue" or "payment due" and may be for a fairly trivial amount of money - a few hundred to a few thousand dollars.

The new Accounts Payable clerk, being new on the job, pays the invoice without thinking, and the fraud is never noticed.   Or, for smaller companies, the Accounts Payable chores are handled part-time by a secretary or clerk, who doesn't think to question the invoice.  No office supplies were ordered or shipped, just an invoice shows up, and ends up getting paid.

In some extreme examples of this sport, the person working in the accounting department is actually in on the gag, and gets a percentage of the take for approving and paying the invoice.   In still other scenarios, a crooked company employee signs off on the invoice as "approved for payment" even though no services or supplies were ordered or sent.  Again, the crooked employee splits the proceeds with the outside "vendor".

I saw this firsthand in the Patent business, where an inside counsel was approving invoices from an outside attorney - for Patents that were never written or filed.  Both the inside counsel and outside counsel were fired and their careers were, well, short-lived.  But not before they skimmed a few hundred thousand dollars from their company.  And this sort of thing goes on in other companies, undetected.

Sometimes this scam is used for "legitimate" services or supplies.  A company may actually ship a load of office supplies or copy paper and then invoice the company.  No one actually ordered the supplies, but since the company accepted the shipment and used the materials, they end up paying the invoice.

Another gag is to send out a subscription to a trade journal, magazine, or newspaper, and then invoice the company with an "Order Number" and the like.  Legal journals do this all the time, using the addresses that lawyers might provide to the journal when they attend a seminar.  Of course, nowhere is it listed that the "subscription" was a free trial, and that the company is in no way obligated to pay.  But once the invoice arrives, accounting pays it, and suddenly the firm is getting the journal every day.

Individuals also get such invoices, and often pay them without thinking.  In the Patent business, there are a host of off-shore companies that send official-looking invoices to Patent applicants, that appear to be from the Patent Office.  These invoices, which sometimes go into the thousands of dollars, are worded in vague and technical-sounding bureaucratic language.  A $2536 fee is now due to register your Patent!  And many applicants, thinking this means their Patent is now allowed, will pay the fee, not realizing they are sending over $2500 to a Hong Kong company that has agreed to "publish" their Patent on a CD-ROM, which is meaningless.

Or, they send invoices for maintenance fees, which inventors pay, not realizing that the company, for the fee specified, agreed only to send the FORM for paying the maintenance fee, and moreover, is not affiliated with the government in any way.

How do you avoid invoicing scams?  If you are running a small company, be sure that each invoice is "signed off" by an employee and confirm that the materials or services were in fact, ordered.  At the very least, you can hold that employee responsible for any losses and then fire them or even prosecute.   Paying invoices without approval from someone other than accounts payable is risky.

Most larger companies only pay invoices to approved vendors, which prevents the drive-by invoice from being paid.  Before a vendor can be paid, they have to be approved and vetted, to make sure they really exist and are not just a criminal entity sending out invoices at random.

Use your accounting software to track which employees are signing off to what.  If you see one employee that seems to be approving a lot of invoices, you should check to be sure that the money being spent is in fact going to real products and services.

If you are an individual and you get an invoice or bill in the mail which doesn't look right, question it.  Don't be cowed by threats of legal action or the like.   And don't fall for "sound alike" company names or faked-up forms or letters that sound like they are from government agencies, when in fact, they are not.

I recently started getting this law journal in the mail.  It is not a bad newspaper, printed daily, with all of the court decisions in Georgia, as well as some excellent articles.  But it was sent to me without any authorization or subscription.  I presumed it was one of those free trial deals.  A month later, I get a "bill" for my "subscription" which I throw away.  Two weeks later, I get a "Final Notice" from their subscription department in the mail.

Of course, I pay neither.  And I called them to let them know what I thought about their marketing technique.

The local paper did the same thing - sending me "free" copies of the newspaper and then sending "invoices" for a subscription.  Not a nice letter saying, "We hope you enjoyed your free trial subscription, perhaps you would like to subscribe?" but an INVOICE stating that I now owed them money.  It is a rotten way to do business.  And yes, I called them to let them know.

20 years ago, a similar thing happened to me in Fairfax County.  They started dumping County newspapers on my doorstep at my apartment building.  Everyone in the building got one, and I assumed it was some promotional subscription deal (years earlier, as a kid, I used to deliver such papers - once a year, we would deliver sample papers to EVERYONE to try to increase circulation).  Two weeks later, I get a bill for the "Subscription" that I "Ordered" and then later on, "final notices" and threats to go to collection.

I called the paper and actually found the name of the Publisher and called him at home, which did not please him too much.  We finally got to the bottom of that deal.  He had hired a company to go out and solicit subscriptions.  The company paid people to go door to door to get subscriptions.  They got a commission on every subscription they sold.

So, not surprisingly, these folks they hired (from a labor pool company or an ad in the paper) went to apartment buildings like mine, wrote down the name and address of everyone in the building (from the mailboxes in the lobby), collected their bonus checks and moved on.   In the meantime, the "subscribers" are now inundated with newspapers and dunning notices from the subscription department.  This is why a lot of people don't put their names on their mailboxes, either at home or at an apartment.

Just for the record:  You are not obligated to pay for things you did not order.  You do not have to pay for newspaper or other subscriptions you never ordered.  You do not have to pay for merchandise that is shipped to your home that you did not order.  You do not have to pay bills for things you never bought or ordered or consumed.

Today, of course, this technique is morphing to the Internet.  People pay bills for virus protection services they never ordered and never got.    A pop-up window warns them their virus scanner is about to "expire" unless they pay a fee.  Before you whip out your credit card, think long and hard about this.  In most cases, such virus scanners are unnecessary and in fact may slow down your computer.  Free or shareware scanners are available online, and of course, most "viruses" are spread through social engineering, not computers, so just changing your online behavior often is the best solution.

But it goes without saying, if you see a bill or invoice that doesn't look familiar, don't pay it without really understanding it, first.