June 2, 2020
Corporate fraud and invoicing
According to PwC’s 2020 Global Economic Crime and Fraud Survey, economic crime has reached its highest levels in the past 24 months, with 56% of UK businesses surveyed stating they were impacted by fraud, corruption or other economic crime. Nearly half of these frauds being perpetrated internally.
Throw into the mix the devastating impact Covid-19 has had on many company cashflows and we probably have the perfect storm. Increasing desperation probably means an even greater propensity to commit fraud, with financial fraud being high on the hit list.
As the likelihood and sophistication of corporate fraud increases, so must the tools used to identify and respond to these threats.
What does fraud look like for corporates involved in receivables-backed finance? Well, examples include the invoice that’s sold, only for the issue or due date to change so the terms exceed the allowable maximum credit period, or the invoice whose value or advanced amount changes post sale.
Sure, some of these are innocent data corrections, but when regular patterns start emerging, transaction parties must question just how innocent these changes really are. More importantly, all parties involved in a programme need a way of automatically dealing with these ‘innocent’ changes and a way to identify this potentially fraudulent activity. As part of our ongoing innovation, we have developed a new application called ‘Collateral Shield’ to help.
A couple of months ago, our Head of Partnerships & Alliances, Ben Grant wrote an article called ‘The Invisible Fraud in Working Capital Finance’ on just this very subject. From the feedback we’ve had, we’re not the only ones to see or suspect that this is happening. Post-sale changes to receivables data are more common than many originally thought.
Aronova is ideally placed to help police these ‘innocent’ changes. We receive daily invoice data directly from the Corporate, we process the data to assess eligibility and we’re effectively the first line of defence in the receivables finance chain. We know which invoices are sold and we can identify where significant post-sale data changes occur. Of course, identification is just one part of the story. The actions taken next are what really count and it’s where our Collateral Shield technology we can make a real difference. By automatically detecting threats and then implementing a series of actions, we can protect the transaction parties from the effects of post-purchase data changes.
Collateral Shield is a really interesting piece of ‘always-on’ technology that sits discreetly behind a receivables-backed working capital programme. It works by monitoring significant data changes to sold receivables and executing a series of corrective actions when changes occur.
The significant changes we’re interested in are those that would potentially affect eligibility if an invoice were to be re-assessed. For example, changes to invoice terms, invoice value or advanced amounts. More dramatically, we’re also monitoring for changes to debtor identification as this could affect multiple invoices due to credit limit, activity sector or country aggregation tests.
Once we identify a significant change, and depending on a programme’s set-up, we can first auto-repurchase a sold receivable, then automatically re-assess it for eligibility (excluding any invoice ageing tests). Finally, so long as the changed invoice is still eligible, we can automatically resell the invoice back into the funding programme. But crucially, if a retested receivable fails eligibility, it won’t be resold.
How we help
Collateral Shield protects transaction parties with an auto-response mechanism to counteract the risk of invoice and white-collar fraud. It can be switched on or off for each funding programme and different policing levels can be configured per client. In summary, it’s highly adaptable and can be built to the precise requirements of the programme and its constituent parts. Its abilities seamlessly integrate with our standard Movements Reporting suite to ensure invoice level visibility, monitoring and programme reporting. After seeing the technology in action, the majority of our clients have either added this to their reporting suite or are in the process of upgrading.
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