Overbilling

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Overbilling (sometimes spelled as over-billing) is the practice of charging more than is legally or ethically acceptable on an invoice or bill.

Contents

Overview

Contractors and professionals

Overbilling in the medical industry can occur when doctors seek to overcharge the government or an insurance company for the actual services provided to their patients or by charging for services not provided. [1] Overbilling in the legal industry can occur with both large institutional clients and smaller, individual companies or personal clients. [2] Overbilling can be an issue in the consultancy and information technology industries as well. Stephen Northcutt, Cynthia Madden, and Cynthia Welti wrote that overbilling occurs more often within larger companies where there is less of a personal connection between employees or contractors and the firm being billed. [3]

Institutional overbilling

Overbilling can occur when larger institutions or governments create errors in their calculations of how much various individuals may owe. [4] Banks and credit card providers can also overbill clients, or indirectly facilitate overbilling through the method by which they allow vendors to charge a client after the client has accented to having their card billed. [5] It has been argued that overbilling is rampant enough in some industries that employees that refuse to overbill risk their jobs due to a lack of economic foresight or acuity in management policies or business plans. [6]

Laws

Overbilling clients can constitute an example of breach of contract and result in fines, lawsuits, or prison time. [7] [8] Overbilling can also be a part of U.S. Racketeer Influenced and Corrupt Organizations Act schemes and other organized crime activities. [9] Some individuals that have been convicted of overbilling were done so under the charge of mail fraud, or under the False Claims Act in the United States. [10]

Leonard Vona wrote that, "Overbilling schemes differ from false billing schemes in that the vendor is a real vendor and actual goods or services are provided. The real vendor typically commits the scheme in collusion with a company employee. The real vendor over charges the company and an accounts payable manager approves the vendor invoice for payment. The vendor can commit the scheme without internal collusion by taking advantage of known internal control weaknesses." He also wrote that overbilling can occur via fictitious charges, inflated prices, inflating the quantity on a statement above the actual quantity delivery, providing sub-standard products, charging for goods or services a vendor knows a company does not need, charging too much, and others. [11]

Anti-overbilling practices

Overbilling is a part of many fraud audit infrastructures employed by large companies. [12] Computer programs and software is often used to screen a company's finances to check for overbilling or symptoms of overbilling. [13] Overbilling has been the focus of several infamous scandals, such as the Worldcom scandal [14] and the bankruptcy of W. T. Grant. [15]

Related Research Articles

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KPMG Multinational professional services and accounting company firm

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Factoring (finance)

Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. Accounts receivable financing is a term more accurately used to describe a form of asset based lending against accounts receivable. The Commercial Finance Association is the leading trade association of the asset-based lending and factoring industries.

Accounts payable Money owed by business to its suppliers

Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. An accounts payable department's main responsibility is to process and review transactions between the company and its suppliers and to make sure that all outstanding invoices from their suppliers are approved, processed, and paid. Processing an invoice includes recording important data from the invoice and inputting it into the company's financial, or bookkeeping, system. After this is accomplished, the invoices must go through the company's respective business process in order to be paid.

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Accounting software

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By definition an audit is,

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The WorldCom scandal was a major accounting scandal that came to light in the summer of 2002 at WorldCom, the USA's second-largest long-distance telephone company at the time. From 1999 to 2002, senior executives at WorldCom led by founder and CEO Bernard Ebbers orchestrated a scheme to inflate earnings in order to maintain WorldCom's stock price. The fraud was uncovered in June 2002 when the company's internal audit unit, led by the vice president Cynthia Cooper, discovered over $3.8 billion of fraudulent balance sheet entries. Eventually, WorldCom was forced to admit that it had overstated its assets by over $11 billion. At the time, it was the largest accounting fraud in American history.

References

  1. ↑ "Over-billing isn't the Rx". Montreal Gazette . March 10, 1982. Retrieved July 8, 2013.
  2. ↑ "Beware of over-billing by lawyers, says CAP". The Star Online. June 20, 2008. Retrieved July 8, 2013.
  3. ↑ Stephen Northcutt; Cynthia Madden & Cynthia Welti (2004). IT Ethics Handbook:: Right and Wrong for IT Professionals. Elsevier. p. 387. ISBN   9780080478821 . Retrieved July 8, 2013.
  4. ↑ Mike Lindblom (January 28, 2012). "DOT identifies overbilling of Highway 520 tolls". Seattle Times . Retrieved July 8, 2013.
  5. ↑ Chwee Huat Tan (2001). Personal Finance in Singapore. NUS Press. p. 130. ISBN   9789971692506 . Retrieved July 8, 2013.
  6. ↑ David Callahan (2007). The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead. Houghton Mifflin Harcourt. p. 42. ISBN   9780156035576 . Retrieved July 8, 2013.
  7. ↑ John Fay (2006). Contemporary Security Management. Butterworth-Heinemann. p. 150. ISBN   9780750679282 . Retrieved July 8, 2013.
  8. ↑ Darlene Ricker (August 1994). "Greed, Ignorance, & Overbilling". ABA Journal . p. ff. Retrieved July 8, 2013.
  9. ↑ Paul A. Batista (2007). Civil RICO Practice Manual. Aspen Publishers Online. pp. 4–18. ISBN   9780735567825 . Retrieved July 8, 2013.
  10. ↑ H. Thomas Milhorn (2004). Crime: Computer Viruses to Twin Towers. Universal-Publishers. pp. 116–117. ISBN   9781581124897 . Retrieved July 8, 2013.
  11. ↑ Leonard W. Vona (2012). Fraud Risk Assessment: Building a Fraud Audit Program. John Wiley & Sons. ISBN   9781118429082 . Retrieved July 8, 2013.
  12. ↑ Leonard W. Vona (2011). The Fraud Audit: Responding to the Risk of Fraud in Core Business Systems. John Wiley & Sons. p. 169. ISBN   9781118093702 . Retrieved July 8, 2013.
  13. ↑ David Coderre (2009). Computer Aided Fraud Prevention and Detection: A Step by Step Guide. John Wiley & Sons. ISBN   9780470451618 . Retrieved July 8, 2013.
  14. ↑ "Overbilling issue may add to WorldCom's trouble". USA Today . March 7, 2002. Retrieved July 8, 2013.
  15. ↑ Caroline Sutton (2010). How Did They Do That?. HarperCollins. ISBN   9780062018519 . Retrieved July 8, 2013.
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