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Be aware of invoice fraud

What steps can construction firms take to avoid falling victim to fraudsters.

Invoice fraud has hit the headlines in recent months, with several scams of up to £1m being reported in the national media. 

Invoice frauds arise when a business is fooled into changing a supplier’s bank account details so that payments go elsewhere. Construction is a prime target for such frauds, as sizeable supplier payments are often made.

Planned crime

Fraudsters are not usually casual opportunists and it is likely that months of planning and research has gone into understanding the company, its projects and its systems before striking.

Needless to say, the phenomenon has grown in tandem with the rise of electronic communications in recent years.

Frauds usually come to light when the supplier chases the payment, by which time the majority of the funds have been transferred out of the UK banking system, never to be recovered.

”Invoice fraud has grown in tandem with the rise of electronic communications in recent years”

So what steps can construction businesses take to avoid falling victim to the fraudsters?

The first and most important step is raising awareness among employees. It is essential that organisations and their staff are aware of the warning signs and know what to look out for.

Fraudsters often go to great lengths to establish trust with employees to ensure the scam is successful, and they may well try to establish a relationship with the firm’s finance team before carrying out the fraud.

Main lessons

Here are some of the main lessons to learn when considering how to prevent invoice fraud:

  • Finance staff must be trained to understand how and why these frauds occur, and must be told to remain vigilant at all times.
  • Make sure any changes to suppliers’ bank details are independently verified by senior members of your finance team.
  • If you are contacted by someone asking to change bank details over the phone, always ask for the change to be confirmed in writing (not email) and call the supplier back using details that have been previously verified and are held in a secure file.
  • Use a different telephone to authenticate the request, and ask to speak to someone you already know at the supplier.
  • When a supplier invoice is due to be paid, it is good practice to inform that supplier of the specifics of the payment, including the bank account details where the payment is to be made.
  • Ensure your organisation’s financial information is kept confidential, as details of direct debits or payments can provide useful information to fraudsters which they may use to establish credibility with you or your staff.
  • Never reveal any passwords or pin numbers to anyone over the telephone, even if you are asked to by a bank employee who seems genuine. You might think this is obvious, but it does happen! Fraudsters are well-prepared and extremely convincing.

If the worst happens

If you suspect you have become a victim of invoice fraud, act quickly. Contact your bank and the police as soon as you become aware.

It takes the fraudsters time (albeit not that long) to transfer the money out of the UK banking system, so if you can get to the money before it’s left the country, you have far more chance of recovering some of it.

If a fraud has occurred, review your procedures and see what steps you can put in place to prevent the fraud recurring.

Fraudsters are continually changing and updating their methods, finding increasingly innovative and deceptive ways of fooling organisations and their employees, particularly as technology is evolving so quickly.

“It is no longer enough to have a basic procedure in place. Policies must be continually reviewed and based on expert advice”

It is therefore no longer enough to have a basic procedure in place. Policies must be continually reviewed, based on expert advice and insight, and staff should be trained so that they understand and can implement the required steps.

Most businesses are covered under their business insurance policy if an employee commits fraud, but cover rarely extends to third party fraud. As a result, this can have a devastating effect on the business, causing financial difficulties ranging from short-term cashflow problems to – in extreme cases – insolvency.

All businesses or organisations are susceptible to fraud and having fraud prevention processes in place is only the beginning.

Make sure your staff understand those procedures and the rationale behind them, and most importantly, stay vigilant.

Jeremy Cooper is a partner and head of the retail and consumer brands at national audit, tax and accounting firm Crowe Clark Whitehill

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