Who last audited your accounts payable process and convinced themselves that false invoices had not, and would not be paid?”

Wednesday, November 14th, 2012

The invoice payment process in any organisation carries potential risk. A topical story is the former Labour minister, Denis MacShane who wrongly claimed at least £7,500 in expenses. A Parliamentary committee observed after work by the Parliamentary Commission for Standards concluded that between 2004 and 2008 MacShane submitted 19 invoices totalling £12,900 for ‘research and translation’ work carried out by the European Policy Institute. The commission also found that this Institute, in the way it was presented on the invoice – with a general manager and directors – did not exist (our emphasis). For the purpose of this paper we can accept that there is a danger of invoices being incorrectly paid in every organisation. In an Indian Government report (cag.gov.in) there is a relevant heading, “Fraudulent drawal/misappropriation/embezzlement/losses” and at 4.1.1 of the report it states “Failure of the Executive Engineers to follow the prescribed system for purchase of bitumen by the contractors resulted in payment of RS 2.32 crone on production of 160 fake invoices.”  The damning observation is “Therefore, it appears that fake invoices were submitted by the contractors and the Assistant Engineers did not check the genuineness of these invoices and ensure the receipt of materials before finalising the claims of said contractors.” And now, to the USA for an example of invoicing (thelensnola.org), where the Louisiana Legislative Auditor (Jan 4. 2012), reported “In our work on PA transactions at GOHSEP we discovered anomalies in the documentation submitted by Ninth Ward ………. we determined the following: Ninth Ward received $136,949 from GOHSEP for gutting the Semmes Building by submitting proposals and invoices purportedly from a contractor who stated the proposals and invoices are not his and who did not do the work.” Bringing the situation nearer home, readers may want to research the situation at Barnet Council with RM Countryside Services Ltd. Reference can be made to Mr Mustard ([email protected]) where there are copies of invoices that can be studied. One example is Invoice No 5923 dated 25/10/2011. One item is a quantity of 39 “Remove Post” at a unit price of £60.73 at a total price of £2368.47 plus VAT. The payment terms are “strictly 10 days Net.” The skill in passing this invoice is the origins of £60.73 and who has the knowledge of its cost drivers. Therein lies a problem – who has the cost breakdown?

Here is a sample of what we have found checking invoices of customers:

  1. Provided the invoice value was within 10% of the contract value – pay it!
  2. Duplicated invoices paid
  3. A buyer submitting false invoices from a company owned by his family
  4. Invoices paid from solicitors and consultants for Lump Sums and no detail of services provided
  5. Erroneous VAT numbers on invoices
  6. Travel expenses unchecked or verified from an IT supplier
  7. Closed loop scenarios
  8. Buyer and stores personnel authorising invoices but goods never received
  9. Prices entered in pencil on invoice
  10. Invoices for which there was no Purchase Order – quite often expenditure authorised by Directors.

A pertinent risk question is “Who last audited your accounts payable process and convinced themselves that false invoices had not, and would not be paid?” Our ProcuriskÒ will assist in scrutinising risk in this process and could avoid £ millions of losses.


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