Watch for Billing Schemes 

A common form of misappropriation, a billing scheme occurs when an employee creates a situation that causes their employer to issue payment for an illegitimate or overstated charge. These schemes are easy to pull off, especially in smaller companies, due to a lack of duty separation or management oversight, and are difficult to detect because payments are recorded as if they are legitimate.

Types of Billing Schemes Include:

Shell Companies

An employee creates a fictitious company, sets it up as a vendor then submits invoices from the vendor for payment. Often, the person submitting the invoice is also the one paying it.

Pay and Return Schemes

An employee intentionally pays a vendor twice then requests one check to be returned in the employee’s name. The employee then deposits the returned check into their bank account.

Personal Purchases

An employee makes purchases using the company credit card or submits fake expense reports for reimbursement.

Signs of a Billing Scheme

• Items that are not typically used by the company are purchased.
• An abnormally high number of purchases are made from one vendor.
• A vendor uses either a P.O. box address or an address matching that of a company employee.
• A vendor who is not on a company-approved vendor list submits an invoice.
• A vendor has a company name consisting only of initials; though it may be legitimate, this is a common naming convention for fraudulent businesses.
• Large billings from a vendor are broken into smaller payments.

How to Detect and Prevent Billing Schemes

• Ensure that employees who are responsible for purchasing goods and services are not authorized to set up new vendors.
• Conduct due diligence on new vendors to ensure that they are legitimate.
• Review payments to vendors and look for abnormalities such as excess payments to a vendor.
• Require detailed receipts for company credit card purchases and expense report items.
• Establish a segregation of such duties as purchase requests, purchase authorizations, purchases of goods and services, merchandise receipt, payment authorizations and vendor payment processing.
• Conduct random audits of paid invoices, company credit card purchases and expense reports.
• Educate employees to spot a billing scheme.

If you believe you have been the victim of a billing scheme, or if you notice any unauthorized activity on your Luther Burbank business banking account, call 844.269.1031 or contact your branch.