Businesses of all sizes are increasingly targeted by sophisticated fraud schemes involving vendors and suppliers. From fraudulent invoices to fake vendor accounts, these scams can lead to significant financial loss and operational disruption. Understanding the risks and implementing strong controls is essential to keeping your business safe.
The Rise of Vendor & Supplier Fraud
Criminals often impersonate trusted vendors or manipulate payment details to intercept funds. Even a single mistake—like paying a fraudulent invoice—can result in thousands, or even millions, of dollars lost.
Common types of fraud include:
Fraudulent invoices: Scammers send fake invoices that appear legitimate, hoping your accounts payable team will process payment without verifying authenticity.
Fake vendors: Fraudsters create vendors in your system or impersonate real vendors to redirect payments to their accounts.
Account mismatches: Hackers change the account information of legitimate vendors, tricking companies into sending funds to the wrong account.
Why Stronger Controls Matter
Preventing vendor fraud starts with building strong internal processes. Without proper controls, even the most diligent teams can fall victim. Key strategies include:
Segregation of duties: Ensure that no single employee has complete control over vendor creation, invoice approval, and payment processing.
Vendor validation: Verify all vendor information before setting them up in your system. Confirm details like address, phone numbers, and bank accounts through multiple sources.
Payment verification: Require additional checks before executing payments, such as dual approvals or direct vendor confirmation for large transfers.
Practical Steps & Tools for Businesses
To reduce risk, businesses can implement a combination of best practices and technology solutions:
1. Audit current vendor processes: Identify vulnerabilities in how vendors are added, invoices are approved, and payments are made.
2. Implement approval workflows: Use automated systems to require multiple sign-offs for new vendors and high-value payments.
3. Use fraud detection tools: Internal systems can detect and alert you of any irregularities before payments are executed.
4. Train employees: Educate staff on recognizing red flags such as urgent payment requests, mismatched invoices, or sudden changes in payment instructions.
5. Monitor and reconcile accounts regularly: Frequently review transactions to detect unusual activity early.
6. Sign up for Positive Pay through Heritage Bank: Checks written against your accounts are not processed if they do not align with the records you provide the bank. This tool is one of the strongest defenses your company has against fraud.
Heritage Bank encourages businesses to take advantage of banking tools and resources designed to support secure payments and fraud prevention, providing guidance tailored to local business needs.
Real-World Example
Imagine a business receives an invoice from a long-time supplier. A scammer has hacked the supplier’s email and changed the bank account details. Without a verification process, the business transfers $50,000 to the fraudulent account. By implementing a dual-approval system and direct vendor confirmation, this common scenario can be avoided.
Staying Vigilant Going Forward
Vendor and supplier fraud is evolving, but businesses can stay one step ahead by combining strong internal controls with the right technology and employee training. Protecting your business starts with vigilance, proactive policies, and continuous education. Partnering with a bank like Heritage Bank can help you implement secure processes and access tools that reduce risk and keep your business operations running smoothly.
