Invoice fraud: get smart or get fleeced

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Invoice fraud can be an expensive problem, if you choose to ignore it. Last year invoice fraud cost UK firms almost £93 million, with 3,280 invoice and bank scam cases reported – at an average of £28,000 per case. Although there has been an increased awareness in the business and consumer press around the potential risks of invoice fraud in recent months, a 2019 survey conducted by UK Finance revealed that more than 4 in 10 UK businesses are completely unaware of these possibilities. 

The survey also uncovered that even though large firms were more likely to have taken the necessary precautions to protect themselves against these scams, they were also more likely to be the target. As likely, with scale becomes more possibilities for fraudulent invoices to ‘slip through the cracks’.

Invoice fraud could happen to businesses of all sizes. The gangs behind this type of fraud are increasingly sophisticated and will often get hold of details that allow them to pose convincingly as regular suppliers.”

Katy Worobec, Managing Director of Economic Crime at UK Finance

Invoice fraud is when businesses are tricked into sending money to an account controlled by a fraudster rather than the genuine supplier. Often criminals will try to acquire details from businesses, such as the date when regular payments are due, to make their approach more convincing.

In my previous blogs, I’ve looked at how the latest technology can provide valuable insights into the data organisations receive. Essentially, it comes down to being able to automatically and efficiently process organisational data whilst meeting audit and compliance requirements. This principle can also be applied to identifying and avoiding invoice fraud. 

How to spot fraudulent invoices

Benford’s law

Try applying Benford’s law to your invoice data. According to this law — also known as the first-digit law — invoice data follows a certain sequence of numbers. When numbers appear more often than they should, that’s a red flag you may have a questionable invoice. 

  • The number 1 should show up 30% of the time
  • The number 2 should show up 17% of the time, while
  • The number 9 should only show up 4.5% of the time.

It works as most fraudsters often use the same numbers over and over.

Split purchases

Take an extra close look at your smaller invoices. Most companies have different levels of approval depending on the purchase amount, so smaller invoices can be paid without drawing too much attention. Fraudsters could make, say, a £200 purchase without additional approval, and split up a fraudulent £800 purchase into several invoices for £175 or £180. This enables them to skate around your controls.

Other common signs

There are a number of seemingly small or common errors that can crop up on invoices that are also strong signs you are dealing with invoice fraud. These techniques are used by fraudsters, they are relying on your finance teams being too busy to notice inconsistencies. 

Watch out for:

  • Duplicate invoice numbers – whether a fraud or simply an oversight, duplicate invoicing is always a cause for concern.
  • Fictitious or new email addresses.
  • Unusually high delivery charges.
  • Incorrect totals – simple but often effective, sometimes the wrong totals go undetected.
  • Spelling mistakes, or different layouts.

How can technology help?

Identifying fraudulent invoices is a time consuming, manual, unloved process. To do it effectively, you’d need to check through all the invoices you receive very carefully, at line level, and compare these to previous ones that you know to be genuine.

So how can technology identify and prevent payment of fraudulent invoices? CloudTrade’s data capture solution leads the field with 100% line level data accuracy. Because of the power of our technology, we can capture far more data from each document and use that data to check for fraud, by validating all captured data for consistency. That exhaustive (but necessary) cross checking is automated by CloudTrade, giving a business greater peace of mind when it comes to fraudulent invoices.

To find out more about how CloudTrade can help your business, click here