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What makes P2P fraud so easy to do?

Looking back at the news over the last few months, it seems that there’s been at least one case of accounting fraud almost every week. All of which has resulted in billions of pounds lost to the UK economy and, in the cases where the fraud traces back to within the organisation itself, either a high profile exit or two - or a quiet letting go of senior, unnamed executives for less brand damaging “accounting inconsistencies.”

So the question is - have our techniques for uncovering fraud so improved that we’re discovering it more, or have the instances of fraud increased over recent months and years? Or, perhaps an even more alarming thought is – are those uncovered just the tip of the iceberg? It’s probably fair to say that even with the best procedures in place, it’s impossible to prevent all instances of fraud. However, if you really do have the best procedures in place – you can be sure that they won’t get away with it forever. And at some point the fraudsters become complaisant and/or lazy.

To counter this rise in activity the fraud and detection market is expected to grow by 16% in 2014 in response to the global issue which last year cost UK business more than £52bn with the UK public sector alone losing £20.6bn a year to fraud.

Some sectors appear to be more at risk than others, with the National Crime Agency recently issuing a fraud alert to the construction industry in a bid to raise awareness of the growing instances of invoice fraud – most of which from false supplier accounts and employee/supplier collusion.

So what can the P2P departments do to minimize the risk? Well, usually the scams are relatively straightforward. Take for example the recent case at Oxfam – their anti-fraud executive (yes, really) pleaded guilty to a £65k accounting scam involving fake supplier accounts and, via friends and relatives, siphoning the money into his own account. Fairly simple stuff, but in a position of trust and with policy limitations, the fraudulent activity was able to go unnoticed for some time. Ultimately, their systems were robust enough to pick the unusual activity up, and he was arrested.

However, a few simple policy implementations might have prevented it from happening at all. The deployment of some P2P automation helps to raise overall visibility and has the ability to increase accountability across transactions and, if implemented correctly, can go a long way to reducing the opportunity for fraud. The key here is not just the automation itself, but to take a close look at existing procedures prior to implementation and make sure you look at the gaps in security and close down windows of opportunity.

On top of that automation can increase a department’s ability to scrutinise the supplier master file – often a breeding ground for error and if not governed properly, can leave the window open to fraud and duplicate payments. Segregation (and shadowing) of duties ensures that accountability and responsibility routes are clear. Insist on a no PO, no pay policy and ensure C level buy-in for a clamp down on retrospective POs.

Fraud can and frequently does come from outside the organisation, and employee fraud is something we don’t want to think about and yet it’s something which hits the UK economy hard. Unfortunately it’s those in a position of trust, who’ve usually been at the company for 5 years or more and at a senior level who are the most common culprits. Often the activity is accompanied by  unusual behaviour - they may be in work early, leave late and of course – enjoy holidays and cars that don’t tally with what you know of their likely salary. They may enjoy an especially close or perhaps especially strained relationship with a supplier.

But let’s face it, we spend a lot of time at work, and no-one wants to face spending hours contemplating whether our long-term colleagues are up to no good - which is of course, one of the things which those less scrupulous rely on to help them. So, make sure your policies are in order. Take the metrics you should be taking. Reduce the number of suppliers on your master supplier file and make sure it’s up to date and make sure your automation implementation covers all the bases you need it to – and that your senior level executives understand the importance of tight policies and procedures.

Other things to consider:

 

  • Invoices from various suppliers on similar stationary
  • Suppliers with incorrect VAT numbers
  • Transactions which are out of the ordinary – ie late at night, or where the point of sale in a distant city
  • Large number of invoices, especially to a particular supplier, just beneath the approvals threshold
  • Few, or unclear reasons for a particular service
  • Suppliers with PO Box addresses or home addresses
  • Erratic employee behaviour – always in early or late
  • Sudden, or unexplained employee departure
  • An increase in duplicate payments
  • Excessive amounts of rounded up, or down invoice amounts
  • Above average payments to a supplier

 

Some cases of fraud for you to mull over:

Oxfam's £65k fraud

Serco investigated by the Serious Fraud Office

Procurement accounts for 30% of global crime

National Crime Agency issues invoice fraud alert

Fraud prevention market set to grow in 2014

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