Overbilling occurs when a contractor inflates the cost of goods and/or labor, charging their client at higher rates than the amount agreed upon. While this can sometimes be done unintentionally, some less reputable contractors will do this intentionally, hoping that their client overlooks the inflated costs in order to defraud them. In especially severe cases, contractors will re-use past invoices in order to double bills for work already completed. While there are several types of overbilling schemes, any money paid to a contractor above the amount of work or materials provided is overbilling.
For example, if you were to go to an automobile mechanic for a simple vehicle inspection, but the mechanic duped you into paying for unneeded repairs or fixes (or completely faked the amount of work actually performed on your car), then you would be the victim of overbilling.
Common Types Of Overbilling Schemes
Overbilling schemes are unfortunately one of the most common types of consumer fraud. Billing schemes work by taking advantage of lax or overly complicated accounting departments in the hope that the scheme will not be noticed. Companies that fall victim to overbilling often are tricked into buying materials or services that are never delivered, under-delivered, overpriced, or not needed by the organization.
In essence, billing schemes operate by falsifying services or materials rendered, and then directly pocket the extra cash. Competent overbilling schemes will use falsified or fraudulent documents to support the inflated costs. By falsifying the dates, amount of materials, costs, or other pieces of information on documents like invoices, purchase reports, and expense reports, fraudsters can cloak themselves in a guise of legitimacy. If their fraud is successful, their client will cut them a check without catching the inconsistencies, and the fraudster walks away free and clear with some extra money in their pocket.
Advanced overbilling schemes may even rely on insiders within the company being victimized. These schemes are especially dangerous because they will seek to bribe or recruit the very employees that would be responsible for identifying and correcting instances of overbilling. In return for their cooperation, they often receive a kickback from the illicit profits.
Some most common billing schemes include:
- Shell company schemes
- Overbilling from existing vendors
- Personal purchases made using company funds
Overbilling In Different Industries
While overbilling schemes that seek to defraud companies are illegal, not all overbilling is necessarily fraudulent. In industries like construction with slow payment turn-around times, overbilling can be a legitimate strategy for keeping projects going instead of stopping and starting due to accounting lead times. In this scenario, overbilling allows contractors to maintain the project’s timeline by staying ahead of the project cash runway and helps to avoid costly time delays. For these reasons, some contractors will seek to enter an understanding with a slow-paying client that allows and accounts for overbilling that allows the project to stick to schedule and cost estimates.
While this has become an acceptable practice in some industries, contractors should still be wary of the potential risks. Relying too much on overbilling to compensate for slow cash flow can lead to runway problems, and contractors find themselves in a scenario where the estimated costs to complete a project start to exceed the total allotted funding for the project.
How To Protect From Overbilling Schemes
While explicitly fraudulent overbilling schemes require acumen and diligence from accounting departments, companies can also actively protect themselves from unintentional overbilling. Multiple studies, such as [CITE], have found that companies can encourage more ethical billing practices simply by altering how they ask their contractors to account for work deliverables. This research suggests that by tweaking the focus from overall price onto quantifiable deliverables (hours spent, tasks completed, product produced), contractors are more likely to hold themselves accountable and less likely to overbill.
Speak With An Experienced Consumer Fraud Attorney
Overbilling schemes, like most forms of consumer fraud, can be a tricky, often complicated process. Although businesses and individuals are protected by a number of consumer protection laws, there are still many opportunities for people to be taken advantage of by unethical professionals and corporations, meaning that working with an experienced attorney is not only a good choice but often the best choice.
If you live in New Mexico and suspect you may have been a victim of overbilling fraud, consider working with the experienced attorneys at Parnall & Adams. Our legal team can assist you in determining if you are a legitimate victim of bad business practices and help hold individuals, businesses, and financial and insurance institutions accountable for their actions. Give us a call today at (505) 886-4446 or request a consultation online to learn more about our comprehensive consumer fraud representation services. Our experienced attorneys are ready to help you get the justice and financial compensation you deserve!