With construction firms losing £1.8bn to invoice fraud each year, it’s more important than ever that contractors know how to tackle it.
As reported exclusively in Construction News last month, the amount companies in the industry are losing from invoice fraud every year amounts to £1,948 per business.
Of those affected, one in six firms believe the fraud has cost them more than £5,000 in the last year alone.
What’s more, concern about the scale of the fraud is greater in the construction industry than any other sector, with a staggering 71 per cent of business owners troubled by its increase.
They view it as the single biggest threat facing their business – more so than losing a major contract, a member of staff or competitor activities.
While we suspected invoice fraud was a growing challenge, its scale and impact is astounding.
Invoice variety causing problems
One contributing factor is the number of different formats in which an invoice can arrive. It might come as a paper document, a PDF scan of a hard copy, or totally electronic. It could be delivered via post, email, web portal, or uploaded directly to an accounting system. It could even be a confusing combination of options.
“The scale and impact of construction invoice fraud is astounding”
Where invoices are arriving via email, they might go to anyone in a team, so this means everyone needs to be alert to the potential for fraud.
Of the construction companies surveyed, 60 per cent have received a fraudulent or suspicious invoice in the last year – this is significantly more than any other sector. Small and medium-sized businesses often find it hard to combat invoice fraud because of limited resources.
A sole trader, for example, may spend long hours running their business, not having much time to inspect each invoice and cross-check prices against original quotes – or indeed actual goods or services delivered. Firms are losing hard-earned money simply through missing a change in a digit here or there.
“It’s critical that processes are in place to safeguard the invoice process”
For a larger business, the issue is the sheer volume of invoices and suppliers and they are more likely to be targeted because they offer the richest rewards for criminals. It is critical that tools and processes are in place to safeguard the invoice process.
One infamous case involved the Olympic Development Authority and Skanska. Two men were eventually jailed for falsely obtaining £2.3m by pretending to be Skanska’s finance director and writing to the ODA with a change of account details ahead of a bank transfer.
The fact criminals targeted an organisation the size of the ODA for such a large sum with this remarkably simple fraud shows their audacity.
The ODA’s experience is a cautionary tale and a reminder of the need to be alert, introduce set processes and checks into your business, and train your key personnel so they fully understand the risk of invoice fraud and how to identify it.
In this day and age, construction firms face all manner of challenges, but with the correct protective measures in place, they can begin to win the fight against invoice fraud.
Lucy Ashdown is head of compliance at Tungsten