In 2018, invoice fraud cost UK businesses £92.7 million. What steps should you take to protect your business and how can Cloud Accounting help?
According to a report published by UK Finance entitled, ‘Fraud: the Facts 2019’ there were 7,544 reported cases of invoice and mandate scams in 2019. Of these 3,280 were perpetrated against businesses and involved a total of 4,467 diverted payments amounting to £122.3m. Of this only £28.6m was traced, leaving unrecovered losses of £92.7m.
Invoice or mandate scams are the third most common type of Authorised Push Payment (APP) fraud, in which a criminal tricks his victim into making a payment to him. In an invoice or mandate scam, the victim believes he is paying a legitimate invoice, but in fact he has been tricked into making a payment into an account controlled by a criminal. An example is a criminal who contacts a business posing as a supplier and claiming that the bank account details have changed. Often the fraudster will previously have obtained information on the business and its suppliers by hacking or intercepting emails, and the information he has obtained adds to his plausibility.
How to defend against invoice and mandate fraud
- Train staff who process supplier invoices and who have the authority to change bank details to be vigilant.
- Requests to change supplier financial arrangements should always be verified with that supplier using their contact details already held on file.
- If you are making a payment to an account for the first time, transfer a small sum first and then check with the company using known contact details that the payment has been received.
- Try to avoid making publicly available (e.g. on your website) any information that could help a criminal to find out the identity of your suppliers.
- Establish a designated point of contact with suppliers to whom your company or organisation makes regular payments. Raise all invoice issues and concerns with this person.
- Examine every invoice carefully. Fake invoices often contain inaccuracies, spelling errors or unclear graphics that give them away.
- Contact your bank straight away if you think you may have fallen victim to an invoice or mandate scam.
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Cloud accounting to the rescue
The processing of purchase invoices is susceptible to fraud because it is an area that is still often uses paper-based systems. Purchase invoices are often manually checked, and in a typical business the busier the finance department the more likely errors are to occur. Some criminals rely on this to submit fake invoices for goods and services never supplied, often for small amounts, in the expectation that payment will be approved without verification.
However, artificial intelligence and automation are now changing the way invoices are processed and monitored. Cloud-based invoice management uses this technology to considerably reduce the risks of invoice fraud. Automated invoice processing scans submitted invoice attachments, extracting and digitising all of the relevant information. It then matches the invoices with known suppliers in the system, and submits them for approval. Normally 90% of invoices can be dealt with in this way, the remaining 10% being set aside for manual processing or additional scrutiny.
Suitable systems can be integrated with the user’s cloud accounting software, creating an audit trail. The AI element of such a system will analyse data and identify such warning signs as:
- Irregular invoicing patterns
- Unexpectedly large sums
- Spikes in a supplier’s invoice frequency
- Unmatched or duplicate information
- Approval of invoices by staff at an inappropriate level of seniority.
Assistance is available
If you would like to find out how cloud accounting can make your business more resistant to fraud, as well as provide you with better and more up-to-date financial information, please do get in touch.