Why is fraud detection important?
From loss of capital and reputational damage to possible legal repercussions, the fallout from fraud is no joke. That’s not to mention the effect it has on team morale and trust. Fraud detection, then, is imperative.
Potential fraudulent activity in Patisserie Valerie, for example, ended up contributing to the business collapsing and closing 70 stores in early 2019. This affected the business and the lives of around 900 people who lost their jobs. £94m was unaccounted for, and the activity was only found when a team member queried an invoice.
It’s clear that fraud is a large issue for all organisations. In the 2023 Purchase to Pay Network Survey, 79% of Accounts Payable managers reported an attempted fraud in the last three years. 20% of those said that they experienced significant issues due to this.
The government has also cracked down further, with fraud laws tightening on large organisations. Therefore, the onus is increasingly on us to be scrupulous in our fraud detection and prevention practices.
How we traditionally detect fraud.
Fraud detection is a difficult feat at the best of times. We can review our transactions for duplicate payments, rounded numbers, higher-than-usual invoice values or quantities, invoices slightly below approval amounts and more. But it’s time-consuming and uses up resources.
We can cross-check our suppliers against employees for bank detail matches. Or send an alert when bank details change for a supplier. Create rule-based systems to flag large invoices for double checking. Put three-way matching in place to ensure our quantities and costs match across our organisation.
All these actions are excellent steps to tighter security. But we know fraudsters are getting smarter, so we must be even more vigilant. We need an extra layer of protection.
The power of technology in fraud detection.
While we can complete many of these tasks manually by looking at an ERP, technology makes fraud detection far easier.
Technology allows for data analysis at an even larger scale and with higher accuracy. It takes transactions and run tests against them allowing you to see discrepancies to review much faster.
Not only this, but it is accurate. Imagine a human working through this endless data. Let’s not forget that we are fallible. With the best will in the world, we still forget things and get tired. We can miss the small details while our brains see only the bigger picture. Perhaps we’ll miss a couple of invoices or make an assumption instead of querying a cost. It only takes one chink in the armour for fraud to go unnoticed. Technology processes every item with the same amount of scrutiny, every time.
This scale and speed frees up vast amounts of staff time. Further, this allows them to investigate possible fraud cases before the payment run. And if it doesn’t get paid, the cash never leaves the company.
How can AI help to improve our fraud detection and prevention?
The difference between standard software and one using Artificial Intelligence is that AI can see patterns. Artificial Intelligence-based software solutions analyse historical data and identify unusual patterns or anomalies. It can see, much as a human might, where one invoice is not like the others. It might be a value, an extra line, an extra invoice that month, or a duplicate. The software looks for and sheds light on these issues. Therefore, it is very accurate in finding anomalous transactions that could pinpoint an instance of fraud. Instances that could well have gone unnoticed despite your best efforts.
Machine learning allows for software to process vast amounts of data fast, with accuracy*, and with sophistication. Thus, you can have a real-time, continuous monitoring system which can alert you as soon as it sees a potential fraudulent transaction in your ERP. That instant alert could be the difference between paying a fraudulent supplier, or not.
We spoke to fraud expert Robert Brooker, who said: “Adopting AI-driven accounts payable automation helps minimise manual errors in processing. Traditional methods involve a lot of manual input, which can lead to unintentional errors or even fraudulent activities. This real-time validation helps prevent errors and potential fraud, resulting in a more efficient and accurate process. By continuously monitoring and learning from past transactions, AI can quickly flag any suspicious activity that would otherwise have gone unnoticed.”
Conclusion: Utilise technology to protect against fraud.
According to UK Finance, fraudsters stole over £1.2 billion in 2022. That’s a huge amount, and they won’t be stopping any time soon. So, it’s even more important that we use the best possible tools to deal with this threat. That includes through software with Artificial Intelligence.
We encourage you to stay up to date with advancements in fraud detection technology. In that way, you can prevent the effects of fraud – financial loss, legal issues, damage to reputation and harm to team morale – more effectively.
*In a comparative study, we found that our current software produced 48.33% fewer exceptions than non-AI software.