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Watching 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

  • 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.