How much are businesses losing due to fraudsters taking advantage of antiquated procurement and invoice payment methods? Following a recent report by Experian, PKF Littlejohn, and the University of Portsmouth, it has been shown that the numbers are not only much higher than estimated, but also that procurement is a top target: Procurement fraud accounts for an enormous £127bn of the £193bn lost in the UK alone.
These numbers, according to the Annual Fraud Indicator 2016, dwarf the initial estimates by the UK Government of £50bn in 2013, and highlight a need for visibility into the procurement function.
Why Procurement is Targeted
According to the report, and a Purchase-to-Pay Network article highlighting the report, procurement is so vulnerable because of the sheer size of expenditure which it accounts for, as well as the high volume, low value nature of transactions and the breadth of fraudulent activity it is susceptible to:
“After many years of research we now know that fraud isn’t just a series of low volume, high value incidents which, if you are lucky, you can avoid, and which, if you are not, you react to after losses have been discovered. We now know that it is a mostly high volume, low value phenomenon which is present in any organisation of any size as an ongoing business cost, and which is best pre-empted by raising levels of fraud resilience (a measure of protection against fraud).” –Jim Gee, Partner and Head of Forensic & Counter Fraud Services PKF Littlejohn LLP
There are often multiple opportunities for fraud in procurement and some of the most common are listed below:
- Legitimate suppliers adding unauthorised additional cost to an invoice
- Legitimate suppliers colluding with staff to add additional costs to an invoice
- Fraudulent suppliers/staff submitting false invoices for payment
- Fraudulent suppliers/staff diverting legitimate payments to legitimate suppliers to themselves
- Under-provision of goods and services in terms of quality or quantity
Gaining Visibility and Control: A ‘Basic Corporate Responsibility’
With so much to lose, protecting your organization requires that procurement professionals are not only able to identify deviations from agreed upon pricing, but take steps to prevent procurement fraud in the first place.
Esa Tihilä, CEO of Basware, suggests that it’s not only a monetary, but also a basic corporate responsibility issue to address this:
“Businesses have a responsibility to their investors, customers, employees and suppliers to protect them against these threats and e-invoicing will help to cut these fraudulent losses. Visibility and traceability of invoices, within trusted buyer and supplier networks, make the process of buying and selling safer for the companies involved, as well as quicker and more efficient.”
So what is the top solution to fight fraud? Changing your payments method. A recent blog on WEX Travel took a deeper look at the dangers that persist when using traditional payment methods in paper invoicing and check-based payments, as well as the dangers of using corporate cards and bank transfers:
Check payments are most risky as readily available technologies mean it can be easy to forge a check, they can easily go missing without you realizing and details written on checks could be altered before they are paid in. If you do not carefully manage and store checks you could easily be exposed to check fraud.
Paying suppliers by corporate credit card or bank transfer is less risky than paying by check as there are controls in place to detect and alert you of unusual usage. However, if your card or bank details are not transmitted or stored securely and fall into the wrong hands you could be exposed to fraud.
How Virtual Card Numbers Offer Unprecedented Visibility and Control
The best option to prevent not only the perils of manual and paper-based processing, but also the risks occurring from using repeatable information is to optimize your payment processes with virtual card numbers and e-invoicing.
Among the benefits of using virtual card numbers gain visibility and control while paying suppliers:
- Exceptional Transaction Control: Payment administrators can set controls in order to ensure that the payment covers the exact amount needed, and does not go to an unauthorized source.
- A Plethora of Data You Can Use to Minimize Risk and Capture Opportunities: Virtual transactions deliver unparalleled information that’s really appealing to Big Data lovers, who use it to understand spending patterns, optimize processes, and manage supplier relationships. With detailed remittance data that goes much farther than what’s provided through ACH, wire transfer, and other legacy methods, there is a treasure trove of payments data you can use to your advantage.
- The Ultimate in Payments Visibility: With a virtual card, individual transactions are given a unique “card” number, enabling easy and automatic matching and a streamlined payment flow.
Additional benefits—international acceptance, faster payments, automation, improvements to your relationships with existing, credible suppliers, and more—are discussed in the following articles:
- Virtual Cards, 1099-Ks, and the Advantages Your Company Receives
- Exploring New Forms of Automation in Payments
- A Business Case for Virtual Payment Tech
- Three Tips to Prepare Your Organization for What’s Next
- Five Things to Look Out for in the World of Payments in 2017
- 5 Things You Didn’t Know About Virtual Payments
- Four Barriers to E-Payments Adoption (and How Virtual Cards Overcome)
- Promoting Virtual Cards Among Your Suppliers
Learn even more by staying up to date with the latest in payments by following @WEXIncNews on Twitter.