The uncomfortable truth about invoice fraud is that we only know about what’s detected. Court prosecutions represent the tip of a very large iceberg. The vast majority of invoice fraud remains undetected and unreported.

It’s a problem that affects companies of all shapes and sizes and takes place across industry sectors. Recent high-profile victims include Google and Facebook, who were duped out of $100 million by a Lithuanian scammer.

So if global corporations are failing to stop this problem, what hope do the accounts payable teams have within your average-sized SME?

Thankfully, this is one area of financial administration that’s being transformed by digital tools and the combination of AI and automation. It’s fundamentally changing the way invoices can be managed and monitored.

Weaknesses of a manual system

What makes invoicing so susceptible to fraud, is that it’s one of the few remaining areas of finances where manual and paper-based processes are still commonplace. Typically, suppliers send their invoices as email attachments. In some sectors, invoices are still posted as paper documents.

Either way, this requires the accounts payable team to manually check each submission and to transfer the relevant information across into the company’s accounting system. It’s a slow and error-prone task.

The more invoices processed, the more of an administrative chore this becomes. With so much time and resources required to process these supplier payments, there’s very little time to carry out proper checks and protocols.

The two most common methods of invoice fraud are brutally simple and effective:

1. Changes to bank details

This involves fraudsters spoofing the identity of a known supplier to request that their bank account details are updated or changed. The email message will appear to be legitimate, with the correct logo, the appropriate registry information and a link back to the company website.

If the changes are made, any future payments will go to the fraudster’s account. By the time any wrongdoing is detected, the transferred money is liable to have been moved on to multiple off-shore accounts.

Criminals will often use information from hacked emails to monitor the frequency and timing of a supplier’s billing. This allows them to mimic the patterns and amounts, reducing the risks of illegitimate invoices being identified.

2. Invoices from new suppliers

These are invoices received for products or services that haven’t been provided. Often, scammers will try to put pressure on a finance team by claiming that the invoice is overdue, with financial penalties imposed for further missed deadlines.

Identifying these claims is particularly difficult for a growing business that is likely to be constantly working with legitimate new suppliers. Carrying out thorough checks can quickly become a drain on administrative resources.

Companies find themselves having to strike a precarious balance between carrying out checks while not creating an invoicing workflow that is so slow, it risks damaging relations with legitimate suppliers.

So the core challenge that finance teams face is one of administrative inefficiency. It’s the inefficiency of a manual process which makes it so vulnerable to the increasingly-sophisticated fraudulent activities.

This is why cloud-based invoice management, which combines an automated process with smart AI checks, is proving to be so effective in reducing the risks posed by invoice fraud.

An automated invoice processing approach automatically scans submitted invoice attachments and extracts all of the relevant info in digital form. Invoices are then automatically matched to known suppliers in the system, and routed for approval.

Finance teams then only have to deal with the ‘exceptions’ to ensure these are legitimate, and captured accurately. An effective solution will eliminate around 90% of the manual processing that’s normally required.

This automated invoice management has a two-way integration with Xero creating a fast and fluid invoice process.  Once the invoice has been approved, the validated transaction and invoice are posted into Xero with the journal number retrieved for the full audit trail.

Through smart, integrated tools – AP professionals now have the power to fight back against invoice fraud. The benefits include:

Improved visibility

An automated process provides access to the type of accurate data that’s not available when relying on a traditional approach. Reporting tools bring powerful analysis – revealing irregular invoicing patterns and activities.

The real-time nature of information handling allows finance teams to be proactive, searching for early signs of potential fraud – a spike in the frequency of a supplier’s invoices or costs in a particular category starting to spiral.

Smart AI checks

An automated approach allows each invoice that’s received to be checked for inconsistencies and potential red flags. This includes AI checks for duplicate information and cross-checks to ensure that submitted information matches existing supplier details.

If the system can’t match the submitted information against the verified details from a known supplier, it won’t create a match and the invoice is flagged for further checks from the accounts payable team.

In this way, AI presents a powerful tool to help uncover those small discrepancies that are so easily missed when large numbers of invoices are being manually checked by an AP team.

Approvals management

Making sure that invoices are being checked by employees with an appropriate level of knowledge and expertise is crucial. A cloud-based system provides simple ways to filter incoming invoices so that they receive the appropriate level of checks.

An automated workflow can be created so that invoices are allocated to account managers based on the amount being requested or the category of the cost. This creates a digital audit of exactly who and when each check and approval is carried out.

It’s the combined power of these features, together with the improved efficiency of a smooth and fluid workflow, which is helping finance professionals to start fighting back against invoice fraud.

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