Fraud – Cloud Accounting to the Rescue?

The Association of Certified Fraud Examiners (“ACFE”), the world’s largest anti-fraud organisation, claim that small and mid-sized businesses are the most common victims of insider fraud. Equally the effects of an individual’s activity can be more damaging in a smaller organisation, not just due to the financial loss, but the management time dealing with the incident too.

Small organisations with fewer than 100 employees represented 28% of all instances of fraud, a higher rate than for medium and large businesses and equally they suffered greater financial losses in relation to their size.

Types of insider fraud fall into three categories:

  • Theft
  • Financial statement fraud
  • Misuse of assets

Of these theft remains the most common and this includes stealing cash (often petty cash or via invoice scams), claiming fake expenses and the taking of property.

The main culprits are employees, which is often difficult for a small organisation where employees and owners often have a close relationship. Such a fraud can have impacts beyond the financial loss, as staff morale and retention can also be damaged.

Invoice or mandate scams are bank transfer scams, a criminal can trick someone into making an incorrect payment to them. In an invoice scam the payee believes they are paying a legitimate invoice, but in fact the fraudster has tricked them into making a payment into an account controlled by a criminal. For example, a fraudster phones a business posing as a supplier and claiming that the bank account details have changed.

Training within any organisation is key to managing fraud risk. This coupled with correct processes, controls and oversight; a culture of no tolerance and an openness to challenge behaviour significantly reduces your organisational risk to fraud.

Cloud Accounting can also provide effective tools to help mitigate the risk of fraud whilst also introducing enhanced efficiencies into the financial processes.

Historically processing purchase invoices is susceptible to fraud because it is an area that often uses paper-based systems and relies on the correct physical input of data.

Cloud accounting, artificial intelligence and automation are now changing the way invoices are processed and the way that supplier payments are made. Using cloud accounting apps for data extraction and approvals, such as Receipt Bank and Approval Max alongside your cloud accounting platform, such a Xero or QBO considerably reduce the risks of invoice fraud.

Extraction software utilises OCR technology to read the information contained on submitted purchase invoices, this can be via an email attachment, a scanned invoice or even a photograph of the document. This creates the transaction that is recorded in the accounting platform, rather than manually entering the purchase invoice information.  It even stores an image of the original document within the transaction too.

Integrated invoice approval systems such as Approval Max allow budget holders to place purchase orders against their budget and approve spends once invoiced.  Typically, fraudsters (internal and external) rely on manual processes and knowing that smaller invoices are less likely to get checked, this automation and traceability in approval vastly reduces the chances of invoices “slipping through the net”. Of course, there are also the clear business benefits around the management of costs and budgets.

Garbutt + Elliott are Platinum Xero Accredited advisors and Gold QBO advisors, our Cloud Solutions Architects work with our clients to design, implement and train on the right cloud based solutions to meet their needs. If you have any queries or questions please contact us at: