Three ways local authorities can fight payments fraud
By Ilija Ugrinic, Commercial Solutions Director at Proactis
Public sector fraud and error loss is estimated to cost the UK at least £33bn a year(1), and a flatlining economy means the level of fraudulent activity faced by the UK is increasing(2). This, combined with the rising cost of utilities, labour and goods, is creating a perfect storm for local authority finance teams to contend with.
Here are three steps local authorities can take to tackle the challenge:
1) Maintain strong controls over finances by auditing Source-to-Pay (S2P) cycles
This is the clearest way to tackle fraud since malicious operators can exploit weak links in the S2P cycle to their benefit. However, since every organisation faces individual challenges that are unique to their operations, there is no blanket solution.
The Covid-19 pandemic brought about an intense period of change, and the speed at which this change was implemented may have left some weak links in the chain. The time to step back and take a holistic look at S2P systems is now. An internal audit of organisational structures can identify weak spots, and digitalisation offers a variety of solutions to prevent fraudulent activity, and spot opportunities for savings.
2) Conduct financial housekeeping to reduce the risk of mandate fraud
Inadequate financial controls and a lack of oversight over financial processes, such as invoicing and payment approval, increase the risk of mandate fraud. Simple measures, like ensuring supplier contact details are up to date, and invoice ‘approvers’ are clearly assigned a role in identifying the origin of invoices and detecting irregularities in financial transactions or procurement processes, can help to mitigate risk.
Clear policies around which suppliers can be enlisted, raising POs, and even the types of invoices you accept will also help.
3) Automate to improve audit and reduce the risk of human error
Digitalisation of the S2P cycle can help to ensure that procurement processes are fully documented and compliant, creating transparency that makes it easier to monitor financial transactions and procurement activity more closely for signs of fraud.
Bringing manual systems online delivers a clear audit trail for all transactions, meaning local authorities can efficiently ensure transactions are fully documented and compliant with ever-changing, complex regulations. Through the automation of financial processes, such as invoicing and payment approvals, there is a reduced need for manual intervention, creating a more streamlined and secure process. This can also reduce the risk of human error and the potential for fraud at an internal level.
Enhanced supplier due diligence, through a centralised database of supplier information, will ensure that contractors are legitimate. Digital systems can also provide real-time data analysis and monitoring at the click of a button. This can be particularly useful in identifying unusual patterns, or fraudulent activity across multiple transactions or over an extended period.