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Invoice Fraud in Real Estate: A Growing Concern (and How to Tackle It)

 

Invoice Fraud in Real Estate: A Growing Concern (and How to Tackle It)

Jun 17, 2019

If you are familiar with the origin of phrase, “If you believe that, I’ve got a bridge to sell you,” you will recall the story of George C. Parker, an infamous con man who “sold” the Brooklyn Bridge twice a week for years, setting up a fake office and documents to swindle unwary marks out of their money.[1]

To the gullible yet optimistic buyer, this was the deal of a lifetime — the ability to set up a toll booth, collect money and become ridiculously wealthy, only to find out that the deed was fake and they had been swindled out of their money.

While you have controls in place to ensure your purchasing department wouldn’t fall for something as egregious as this (though there was a successful attempt to sell a fake airport in the early 2000s), it’s likely that your real estate firm has been the target of a similar type of scam: invoice fraud. 

The Dangers of Invoice Fraud

Much like Parker’s “sale” of the Brooklyn Bridge, Metropolitan Museum of Art, Statue of Liberty or Grant’s Tomb, a fake, duplicate or inflated invoice often has the look and feel of legitimacy. It may make it through your approval workflows and even end up being paid, only for you to find out during an audit or review that your company paid a dishonest or even a fake supplier. 

No matter the industry, and no matter the size of the target, invoice fraud is common — Google and Facebook were the target of a scam, paying out a combined $123 million to a cybercriminal in Lithuania.[2]

For real estate developers, invoice fraud is not only common, some of the numbers are astounding, too, with a construction firm admitting in 2012 that it fraudulently overbilled its clients for $19 million over the course of a decade.[3]While these high-profile cases ended with victims reimbursed and criminals caught, many businesses aren’t so lucky. Real estate invoices are often quite large, and with so many vendors, it can become quite easy to let a fraudulent invoice slip through the cracks when trying to pay suppliers on time.

Types of Invoice Fraud

There are many ways that fraudsters try to separate real estate developers from their money. With real estate companies often submitting public bids, information is easily obtained by criminals on the contracts, suppliers in the industry and bids, making organizations like yours an easy target.

From supplier impersonation to invoice inflation, duplication to business email compromise, criminals, fraudsters and dishonest suppliers continue to use new tactics, including but not limited to the following, as discussed by the IACRC:[4]

  • Business Email Compromise:Whether it’s spear phishing, email hacking or creating a “close match” email address (supplier name .co or .net instead of .com), email can be compromised. These invoices are then designed to look like they came from a legitimate supplier. 
  • Check Tampering:With many businesses still using paper checks to pay suppliers, check tampering is common. Alternatively, ACH fraud targets businesses who don’t use checks.
  • Co-Mingling of Contracts:Dishonest contractors can submit multiple bills on different contracts or work orders for work performed or expense incurred only once.
  • Change Order Abuse:A dishonest contractor, acting alone or in collusion with contract personnel, can submit unjustified or inflated change order requests to increase profits.
  • False Invoices:A contractor or supplier will send an invoice for services not rendered or products not delivered.
  • Inflated or Duplicate Invoices:A supplier or vendor will send two invoices or inflate the bill for one invoice. 
  • False Materials Claims/False Credentialing:Contractors or suppliers can submit false information about their employee credentials and experience, charge for higher quality items than are provided, submit false or defective bonds, etc.
  • Fictitious Vendor:In companies with little or no controls in place, an employee or outsider may create a fictitious vendor.

Added to this, businesses are not just at risk from external parties alone — a dishonest employee could assist in the fraud.

Combatting Invoice Fraud With Automation

While there are many ways scammers commit fraud, there are many ways that businesses can combat it. The first step is awareness. Helping employees understand how to prevent invoice fraud, the tactics that scammers use and the risks to your business goes a long way in mitigating this theft. Paired with a company culture shift designed to instill ethical behaviors, education and awareness can help employees become more proactive and less likely to contribute to fraud themselves.

From here, it’s important to establish policies and processes designed to fight fraud at your organization. Vendor approvals, additional workflow steps, employee rotation, unscheduled audits and more are all steps designed to increase accuracy and decrease fraud.

One of the biggest ways to improve visibility and decrease fraud is through automation. Too often, businesses without controls in place are the most frequently targeted and the most likely to fall prey to fraud. By taking steps to automate, improve technology and remove the use of paper from your organization, you can greatly reduce the likelihood that a fraudster succeeds.

Get to Know SAP Concur

At Wipfli, we are proud to deliver SAP Concur Invoice and integrate it with leading ERP solutions. Designed to automate processes and give your business greater visibility into each invoice, this product not only saves you time and money but also can be a powerful tool to increase visibility, take control and minimize invoice fraud. 

We invite you to learn more about taking control of your AP process with invoice automation using SAP Concur, get to know more about the benefits of modern invoice solutions by reading this IDC whitepaper and contact us for more information.


[1] Westmaas, Reuben, “America’s Greatest Conman Sold the Brooklyn Bridge Twice a Week for Years,” Curiosity, April 2018, https://curiosity.com/topics/americas-greatest-conman-sold-the-brooklyn-bridge-twice-a-week-for-years-curiosity/, accessed April 2019.

[2] Fazzini, Kate, “Google and Facebook got tricked out of $123 million by a scam that costs small businesses billions every year — and here’s how to avoid it,” CNBC, March 2019, https://www.cnbc.com/2019/03/28/how-to-avoid-invoice-theft-scam-that-cost-google-facebook-123m.html, accessed May 2019.

[3] “Rashbaum, William K., “Company Admits It Bilked Clients on Big Projects,” The New York Times, April 2012, https://www.nytimes.com/2012/04/25/nyregion/lend-lease-expected-to-admit-to-fraud-scheme.html, accessed April 2019.

[4] Kramer, Michael W., “The Most Common Procurement Fraud Schemes and Their Primary Red Flags,” IACRC, March 2012, https://iacrc.org/procurement-fraud/the-most-common-procurement-fraud-schemes-and-their-primary-red-flags/, accessed April 2019.

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Matt Rowley
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