Potential Scheme: False, Inflated and Duplicate Invoices

A contractor or supplier can commit fraud by knowingly submitting false, inflated or duplicate invoices with the intent to defraud, either acting alone or in collusion with contracting personnel as the result of corruption.

“False invoices” refer to invoices for goods or services not rendered.  “Duplicate invoices” are fraudulent if issued knowingly with the intent to defraud.

Duplicate, false or inflated invoices often are used to generate funds for bribe payments.

“Knowingly” typically is defined as:

  • Actual knowledge of falsity
  • Deliberate ignorance of truth or falsity (“willful blindness”)
  • Reckless disregard of truth or falsity

Knowledge and intent can be proven directly, for example, by the admission of the subject, the testimony of a co-conspirator or other witness with direct personal knowledge, or by documentary evidence, such as an incriminating email.

Knowledge and intent also can be proven circumstantially, by, for example, showing that the subject knowingly altered or forged supporting documentation, lied to investigators, attempted to obstruct the investigation (e.g., by intimidating witnesses) or refused to produce pertinent records.

A pattern of prior similar “errors” or misrepresentations, beneficial to the subject,  also can be used to show willfulness and rebut the typical defense of accident or mistake.

GENERAL RED FLAGS OF FALSE, INFLATED OR DUPLICATE INVOICES

  • Weak controls over the review and payment of invoices
  • Discrepancies between contract or purchase order, receiving documents and invoices
  • Discrepancies between contractor’s billings and supporting documents
  • Invoice is in a round number amount if that is unusual
  • Total payments to a contractor exceed total contract or purchase order amounts

Red flags of false invoices:

  • No receiving report for invoiced goods or services
  • Invoiced goods or services cannot be located in inventory or accounted for
  • No purchase order for invoiced goods or services

Red flags of inflated invoices:

  • Invoice prices, amounts, item descriptions or terms exceed or do not match:
    • Contract or purchase order terms
    • Receiving records
    • Inventory or usage records
  • Discrepancies between invoice amounts and supporting documents

Red flags of duplicate invoices:

  • Multiple payments in the same time period:
    • In the same or similar amount to the same or related vendors
    • On the same invoice or purchase order
    • For the same or similar goods or service
  • Multiple invoices with the same:
    • Description of goods or services
    • Amount
    • Invoice number
    • Purchase order number
    • Date
  • Total amount paid to vendor exceeds invoiced amounts.

CASE EXAMPLES OF FALSE, INFLATED AND DUPLICATE INVOICES

See actual case examples of false, inflated and duplicate invoices from investigated cases.

BASIC STEPS TO DETECT AND PROVE FALSE, INFLATED OR DUPLICATE INVOICES

    1. Identify and interview all complainants and confidential sources to obtain further detail.
    2. Obtain the following documents and examine them for the red flags listed above:
        • Contracts and purchase orders
        • Invoices and supporting documents
        • Work completion reports
        • Receiving records
        • Payment records
        • Inventory and usage records
        • Test and inspection reports
    3. Do due diligence background checks on the contractor to, among other things, (1) confirm that it is a legitimate company capable of providing the invoiced services, goods or works and (2) to determine if it previously has been investigated or sanctioned for fraud or for submitting fraudulent invoices.
    4. Independently verify the correctness of  the submitted invoices, e.g.,
        • Confirm that invoiced services were delivered as claimed; e.g., inspect written work product to confirm that it is not copied, clipped from the internet or boilerplate
        • Inspect and confirm that the quantity and quality of invoiced goods were delivered as claimed; contact the contractor’s suppliers to confirm this if necessary
        • Inspect and test works and materials to confirm that they met the specifications as invoiced
    5. Note duplicate invoices and payments for the same or similar:
        • Invoice number
        • Invoice amount
        • Invoice date
        • Invoice item description
        • Purchase order number
    6. Compare total invoiced amounts from contractor to the total purchase order or contract amounts; note overpayments. Look for evidence of fraudulent knowledge and intent, e.g., plagiarized copied written work product, altered delivered or test or inspection reports, etc.
    7. Exercise contract audit rights and look for additional evidence of fraud, knowledge and intent; e.g., discrepancies between internal time and invoiced expense records and invoiced amounts, etc.
    8. Interview the responsible contractor personnel to obtain admissions or identify potential defenses; continue the investigation to confirm or rebut the claimed defenses.

The failure to meet contract specifications constitutes a fraudulent practice.