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Finance Fraud – Opportunistic Or Designed To Deceive?

November 12, 2019 by Sal Murdoch

It seems to me that every week there is another company in the press in relation to internal fraud, or a senior finance professional being tried in court for finance fraud.  So why isn’t finance fraud higher up on the corporate radar?

Whether it is a planned, serious crime or an opportunistic offence, I believe that we only really hear about a small percentage of the finance fraud that takes place.  In reality, no organisation wants their finance controls, governance and compliance publicly proven to be lacking…the risk of reputational damage in some industries is insurmountable.

By Designed Or Opportunity Calls

There are some individuals, and groups, who specialise in deceiving businesses to gain payments. These groups target organisations with a sophisticated, planned attack, usually gaining some inside knowledge of the processes or systems to enable them to set up fraudulent suppliers and divert funds to their accounts.  Similarly phishing attacks trick AP staff into changing supplier payment details, enabling legitimate supplier payments to be made, but into fraudulent accounts.  

Planned attacks tend to claim payments which are under the financial risk review threshold, hiding within the hundreds of small invoice transactions until found by AP Audit software or internal audit routines. They tend to target the complex relationships between Procurement and Accounts Payable, especially in enterprise organisations where the adoption of artificial intelligence (AI), complex system integration and automation delivers a touchless-AP process, but may lack in the controls of traditional processes.  However, there are many other contributing factors:

  • Incomplete automation or system integration across multiple finance applications,
  • The increasing pace of change in business processes,
  • High turnover of AP staff,
  • Frequent duplicate invoices and duplicate payment requests are normal,
  • The rise in ‘contact-less AP’ systems,
  • Increasingly complex P2P Processes,
  • Poorly designed and integrated OCS and ERP systems.

Opportunistic fraud, however, is undertaken by individuals who accidently find an area of compliance lacking; a process, reporting anomaly or system where a gap in governance can be manipulated in order to divert funds to their own bank accounts.  They can easily cover up the loss, even through multiple audits, as they have access to manipulate the data further if required or fudge the reports.

The difference, you would think, is in the size of the funds diverted, but we have seen reports of multi-million pound frauds like in the example of Heinz, or Newham Clinical Commissioning Group, where those responsible for protecting working capital of the business are misappropriating the funds from inside. 

Some of the tell-tail signs of internal opportunistic fraud are;

  • People living beyond their means,
  • Displaying an unusually close relationship with a vendor or a specific customer,
  • Unwilling to share duties or access to reports,
  • Vehemently own specific parts the audit process.

There are many examples of Accountants, Auditors, Financial Controllers, Heads of Finance or Procurement falling foul of the law.  These roles are primarily responsible for protecting organisational spend.  

Evidently, there is still a need to adopt solutions to safeguard both controls and governance at the final stage of the ‘procurement to payment’ cycle. 

Fighting The Battle Against Invoice Fraud 

That being said, FISCAL Technologies' customers fight invoice fraud every day, and win. They use the intelligence delivered by our NXG Forensics® solution to review 100% of their P2P transaction data – prior to the payment being made.

Designed specifically for Finance, P2P, Shared Services and AP teams, NXG Forensics has been built with our 15-year history and extensive customer experience when delivering Financial Forensic Services. Our customers can quickly review millions of transactions and thousands of suppliers (in current and historic data) looking for anomalies (errors, duplicate invoices and fraud) that warrant further investigation.  Our team of AP Recovery Experts, Process and AP Automation consultants also work closely with clients to identify and reduce their financial exposure, assisting them to recover their losses.   

Nobody wants to believe that they are at risk of fraud, that their processes, systems and governance cannot safeguard their profits, however, invoice fraud is becoming a lucrative industry, today’s finance leaders need help to keep ahead of the threat.

 

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