Arrow Trucking is an illustration of how invoice financing frauds occur and why invoice finance providers such as Cash for Invoices Limited need to be vigilant in invoice verification and due diligence before buying an invoice, even a single invoice
Arrow Trucking (AT) was a large Oklahoma USA trucking company that went into bankruptcy in 2009 after an invoice financing scam was revealed. Monitor Daily - an equipment finance journal, unfolds the complicated scam that was exposed in 2009 but which took eight year's to bring the fraudster (AT's CE) to justice.
AT's bank had provided an invoice factoring facility. The bank subsequently noticed invoice receipts were less than expected. The reason, after investigation, was because AT issued two invoices with different amounts. The customer invoice from AT was for the correct but smaller amount, but the amount invoiced to the bank by AT for the same invoice was higher. AT was therefore taking more money from the bank under the invoice factoring facility than it was invoicing its customers for.
Throughout the summer of 2009, the bank says, every move it made to get to the bottom of the irregularities was met with diversion or outright resistance from Arrow. When the bank asked to speak to the customers in question to verify the accounts, for instance, the company allegedly balked, claiming it would “…risk losing future business with any customers contacted by the bank because they would not want to transact business with a carrier that was ‘factoring’ accounts,” according to the suit.
AT arranged for the bank to speak to 30 customers, but subsequently the bank was able to ascertain through its discussions with the third parties that the “customers” it had been calling were not customers at all, but were imposters arranged by Arrow to cover the fraud. It now says it suspects the 30 “customers” it spoke to on its previous visit were also accomplices in the fraud.
The bank contended that some or all of the representations made by AT in the original invoice factoring agreement of 2008 were false, and that in total, the fraud cost the bank $12.5 million. JOC.com says AT submitted $27m in fraudulent invoices, and that the bank had paid out about $15m before discovering the scam.
The above invoice financing scam illustrates the need for thorough and consistent verification and due diligence and not to cut corners. It also illustrates the reluctance by the fraudster to verify information, and even when it agreed, it had planted dummy customers to try and hoodwink the invoice finance bank (it succeeded for a while).
See the 30 April 2017 post for more on invoice financing fraud.