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A billion euro reminder of the perils of invoice fraud and how it can be prevented


A tendency for deception is a part of human nature and there will always be individuals who take the opportunity to deceive. In other words, fraud is going to happen so what are you going to do about it?

This is something that the Italian government should perhaps have put more thought into. Italy’s financial police recently discovered a false accounting scam that defrauded the state out of a massive €1.7bn. Two businessmen used false invoices issued by intermediary companies to bill the state for non-existent services. The state’s money was paid into the accounts of these companies, the funds were then removed, in cash, deposited in San Marino and Luxembourg, and the shell companies declared bankrupt.

The perpetrators started their racket in 2001 and managed to elude the authorities until now. More than a decade of deception passed in which the fraudsters prospered and the taxpayer suffered. Police have now seized 100 properties and two businesses, and revealed that the two ringleaders had more than 60 accomplices. Yet it took almost fifteen years for them to be caught.

And of course invoice fraud doesn’t just impact government and large corporate organisations. A small UK firm was recently swindled out of £350,000 through fraudulent invoices.

While the scale of the fraud is impressive, albeit criminal, with the right technology and robust processes this kind of scam can be swiftly and easily averted. That’s one reason why so many public and private sector organisations (including 56% of the Fortune 500, 67% of the FTSE 100 and hundreds of thousands of suppliers of all sizes) are choosing to work with Tungsten Network. Governments quite literally cannot afford to waste their taxpayers’ money, and corporations have a responsibility to their shareholders to do whatever they can to avoid or weed out corruption.

Tungsten talks about fraud a lot. We know how damaging it can be to our customers, and more importantly, we know how to combat it. e-Invoicing offers a number of important controls that paper invoices don’t provide. These include, but are by no means limited to, the following:

•    AP departments maintain control over which suppliers are allowed to submit invoices to them

•    AP departments control the vendor number assigned to each authorised supplier, preventing e-Invoices from being submitted from any other source

•    The supplier’s billing department controls which individuals are allowed to submit e-Invoices on its behalf. By implementing an integrated connection – where the supplier sends invoices via a file generated from a billing system and we do not allow them to create invoices directly on our portal – the risk of the creation of fraudulent invoices is almost eliminated

The introduction of Tungsten Network Analytics is changing the rules of spend analysis by giving organisations access to previously inaccessible, or difficult to access, data. The product offers buyer organisations on our network another weapon to combat fraud. It enables users to immediately identify price variance (prior to payment) and see exactly what’s being bought and how much is being spent with whom. Any suspicious discrepancies and inconsistencies are quickly revealed. The life of an invoice fraudster just got a whole lot harder.

Fraud, and its close cousin, tax evasion, are among the biggest financial problems of our time. The Italian government alone loses an estimated €91bn in revenue a year due to tax evasion, which equates to a staggering six percent of GDP. And as the Economist reported, tax evasion was the main motivation for Mexico’s e-Invoicing mandate: the country lost a whopping $3.4bn a year due to dubious invoicing.

Electronic invoicing will help. Spend analytics will help. Tungsten will help. Fraud will happen, and you now know what to do about it.



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