Invoice creep: The small mistakes costing businesses big money

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From whaling, fake invoices, fiddled expenses, scammers are barraging finance teams from all sides, hoping to compromise the financial heart of the business.

A recent report by the invoicing firm Tungsten Network found that invoice fraud is costing the average UK SME £1,658 per year and that 54% of businesses see it as the biggest threat they face. Stats from the government’s Financial Fraud Action found one-in-four British businesses have fallen victim to scams.

It makes for dire reading. And according to Compleat Software’s Neil Robertson, these figures are likely not the whole story. “Fraud is a far more common than anybody is aware of,” he said. “The reason being is that if you’re vulnerable to fraud, you address it -- but from a finance perspective, you won’t be shouting about it.”

Robertson views manual invoice processes as a big culprit behind the enduring prevalence of invoice fraud. Humans are flawed and, especially in a larger business, it’s easy for things to slid under the radar.

“A recent example I know of happened at a mature mid-size company. The FD run an analysis between the payroll bank account details and supplier bank account details. He found four accounts that matched. One invoice was a small value that was put through for ten years, and it cost the business nearly £10,000.”

The other common scam is invoice creep. The supplier incrementally increases the prices. So instead of charging the agreed £5,000, they might put £5,600 on the invoice. If it’s picked up, then it’s easily explained away, but if it slips through the net then, well, that’s a nice bit of extra cash.

“These are vulnerabilities that in most cases won’t kill the business, but it’s little nicks here and there, where people are taking money they aren’t entitled to,” said Robertson. “If the finance team isn’t responsible for this -- who is?”

Where Robertson sees most promise is AI. Artificial Intelligence has become gimmicky in the accounting space, but Robertson views it through a mundane lens. “Digital invoices or PDFs are really strings of data. AI tech is about reducing the time that it takes to intelligently look at a string of data.”

“The invoice process at many businesses is no different from what it was in the 90s, the 80s, the 70s. About 70% of SMEs are manual. In the UK we are so far behind other regions. The automation of invoices happened a decade ago in places like Scandinavia.

“I’m not saying the people aren’t dedicated and they aren’t doing their best, but there’s a limit to human ability.”

About Francois Badenhorst

Francois

Francois is a writer, editor and broadcaster specialising in business.

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By ChrisKH
31st Jan 2019 10:12

“If the finance team isn’t responsible for this -- who is?”

The cost or budget centre holder of course. This won't be a finance team responsibility in larger businesses, where all invoices are checked and signed off by budget holders. The finance team are largely a processing unit; yes, they will check other aspects of an invoice and prevent some types of fraud, but invoice creep and over-billing is not something they would ordinarily spot.

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By keithas
31st Jan 2019 15:52

Many years ago whilst temping at a company, I became aware that the accounts payable team were allowed to grant suppliers discounts.
I spoke to a manager and said that this left them open to employees coming to an arrangement whereby they gave a supplier an unwarranted discount and split the proceeds.
The managers response was "Funny you should say that; we had to sack someone a couple of years ago for doing just that".
Nothing was changed.
You don't need AI to prevent fraud, just a bit of I.

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31st Jan 2019 16:47

It still amazes me that "70% of invoicing is manual" - no wonder 1 in 4 UK businesses have been scammed. There are a number of simple, quick and low or no cost solutions to prevent fraud. Surely accountants and financial professionals have a duty to mandate purchase approvals software to drive transparency, spend controls and full auditability - even before the transaction hits accounts?

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to James Samuels
01st Feb 2019 11:23

MTD will make this a thing of the past.

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31st Jan 2019 17:09

Every invoice and every new supplier needs to be scrutinised. Remote offices are the ones to watch - staff getting in local suppliers without any pre-approval. Having good electronic processes is the way forward.

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