If Shuman Ghosemajumder, Google Business Product Manager for Trust & Safety, is to be believed, click fraud is less than 2% of all invalid clicks. Andy Beal at Marketing Pilgrim has an exclusive article which says Google AdWords Click Fraud is at or below 2%. Google also has a proof for the same. This means the actual number of click fraud is likely only a fraction of 1%. Contrary to this, click fraud agencies report that click fraud is actually 20% or so.
All invalid clicks are not fraudulent clicks. Andy writes, "For example, someone "double clicking" quickly on an ad would cause the second click to be deemed invalid, and the advertiser wouldn't (or shouldn't) be billed (see About invalid clicks from Google for more on this). But some of those invalid clicks are fraudulent, people trying to make money by clicking on things like their own AdSense ads or trying to hurt competitors by clicking on their links."
According to Shuman a chunk of all clicks are considered invalid and not charged to advertisers. In July, Google made it possible for advertisers to see exactly the percentage of invalid clicks screened by Google.
Andy’s detailed post explains Google has a four stage process for identifying and filtering 'invalid clicks.' The first layer is purely automatic and is used to filter clicks from both “search” and AdSense partners (contextual ads). The second and third layers are aimed at filtering only AdSense clicks. The second layer is what Google calls its “flagging system” and is an automatic process to remove invalid clicks from the AdWords system. The fourth layer of click fraud detection falls to these advertisers and detection companies and is what Google calls “requested investigations”.