Fraudulent Invoices, Prevention and Cure – A Local Authority’s Story

It is known that invoice-related fraud or fake invoices being manually processed through Accounts Payable can cost a business or local authority hundreds of thousands of pounds. That can be damaging to any business, but fateful to the smaller ones. The National Fraud Intelligence Bureau reports receiving hundreds of alerts of this type of fraud over the past 12 months alone and they urge businesses to be vigilant.

There are several types of invoice-related fraud through a paper system, most commonly: real suppliers submitting multiple invoices for the same work; real suppliers over-billing for work; non-suppliers invoicing for work that has never been carried out or for goods that have never been delivered; or even internal staff creating “dummy firms” and channelling money through them. It requires a keen eye and, of course, a lot of time for AP to spot these invoices and catch them before they go through the system.

Of course, a good electronic invoicing system (and there are plenty to choose from) and a business with the sagacity and prudence to employ it, will prevent this type of fraud from happening in the first place. A recent press release, issued by Tungsten (a global leader in the field), highlighted how one local authority in particular has first-hand experience of spotting invoice fraud and has successfully been employing its eInvoicing platform to keep the fraudsters out.

It’s always good to get the measure of these success stories at source, so we were delighted when the London Borough of Bexley agreed to talk to us.

Bel Temel is Payments Manager within Accounts Payable at Bexley, which, we discovered, was a very early adopter of eInvoicing. In fact the local authority was one of the first in the UK to sign up to Tungsten, about 10 years ago. So clearly it was a technology-savvy and forward-looking organisation.

We asked her where the invoice-related fraud comes from, given the handful of most ‘popular’ routes we mentioned earlier.

“In our experience,” she said, “these paper invoices come from completely anonymous fraudsters and they are very professional. They can spend a lot of time identifying supplier information and constructing almost undetectable invoices.” But where do they get the intelligence to do this? “Councils have to publish certain data, to comply with the law. So by trawling their websites, fraudsters who understand government requirements can find out the details they need to know. And they can find out which suppliers we use from our own website.”

So how do you spot them?

“We know our suppliers; we know the spend, the contract details and the value of the contracts. When we get a bogus invoice, it will be done on what looks like an identical template to one of our suppliers, just like a bonafide invoice. It will have been authorised as work before it gets to AP. Even so, we have learnt that, regardless, we have to take the time to cross check the bank details once it gets to us, and that’s usually where we find the discrepancy. It’s a time-consuming task: we have to go to the supplier and check they haven’t changed their details since we entered them onto our system; we have to cross check the contract value and the contract details, and then go back to signatories to raise questions. We have several levels of checks in place, but a lot of time is lost on carrying them out. So it’s understandable how it could be so easy for these invoices to get paid.”

So how does electronic invoicing help?

“When you have an eInvoicing system, like the Tungsten one we use, there’s no need for suppliers to use paper at all, everything is done electronically. We can be more confident that each invoice submitted via the system is more likely to be genuine, owing to the security levels, and it is less likely that a bogus supplier can submit a fraudulent invoice.

The problem lies in the smaller suppliers that still rely on paper, and sadly it’s they who are at risk. Currently, about 40% of invoices go through our electronic system. Not all of our suppliers across the board use it, because as a local authority we cannot mandate it, but we would strongly urge that they do. In fact, we would go as far as to say that when we get a paper invoice, we immediately count it as suspicious – and, of course, this can slow down payment times to suppliers, because of all the checks we have to go through.”

“So for us, security is a main benefit of the Tungsten system. There’s a secure area for invoices and a secure area for our suppliers. If fraudsters decide they want to target one of our suppliers, they can’t – it’s that simple. They aren’t aware of who’s on our system, and who isn’t. So if they do try to contact us, we know it can’t be one our suppliers, because they would never have a need to work outside the electronic system."

Why else would you recommend other public bodies adopt an electronic system?

“We can process around 100,000 invoices a year. That’s a lot of processing and a lot of paper. When we didn’t have an electronic system, invoices could get lost among the many layers of the AP process, we had no visibility of what stage an invoice might be at, we couldn’t track progress or see bottlenecks, and we couldn’t answer supplier queries quickly and efficiently. When we introduced the Tungsten system, it made the whole thing transparent right from day one. We suddenly had complete control over the process and this made it much more beneficial to our suppliers too, they like the security!”

A report by Billentis calculates the average saving per invoice through automated invoicing at £4.80, which could add up to hundreds of thousands of pounds. When it comes to public money – you’d like to think all local authorities are spending it wisely!

Many thanks to Bel, and to the London Borough of Bexley, for giving us this candid insight into its AP operations.

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