Accounts payable frauds are growing in frequency and becoming more sophisticated such that a typical payment fraud may not be noticeable at all.
The Association of Certified Fraud Examiners estimates that a standard organization loses around 5% of its revenue annually to fraud. Every business with financial transactions, whether big or small, is vulnerable to these kinds of fraud.
The account payable is like an open cash box for fraudsters, making it a lucrative target for them. The criminals comprise of external parties and employees who can pull off the heists single-handedly or as a group.
Some of the common types of fraud that take place include the following:
- Duplicate payments to vendors due to employee errors or multiple invoices.
- Making payments to false invoices issued by employees
- Fraudulent payments to diverted checks
- Phishing scams
The good news is that you can detect and avoid account payable fraud and even stop it from occurring if you know what to look for and where to look.
Here is a guide on the best ways to prevent account payable fraud:
1. Verify Vendor data
Review your vendor information such as email addresses, bank accounts, commercial addresses and phone numbers. Check for inconsistencies or any matching information to that of your employee records. Public email addresses instead of company domains, residential addresses, and phone numbers matching your employees' records should raise a red flag.
You can begin investigating to verify every vendor detail you get. It is also helpful to adopt fraud detection software that can double-check your vendor records against employee records to check for overlaps.
Companies that have adopted data monitoring and analysis tools have a reduced percentage of fraud cases.
2. Study Fraud Patterns
The most common account payable frauds have suspicious attributes such as high-risk addresses, private mailboxes, far-off countries, night transactions, and consecutive invoice numbers that can alert you of possible ongoing fraud.
You can use fraud detection software to analyze your transactions before payments or perform an audit to uncover ongoing fraud activities. Either way, knowing what to look out for is vital is discovering hidden schemes.
3. Close Stale Purchase Orders and Vendor Records
An inactive open PO is an open door for fraudulent payments. Check POs that are still open even after suppliers have completed work for your company and close them.
The same applies to vendor records that have been inactive for 13 or more months.
4. Stop check payments
Checks are still the most common payment methods from one business to another, and they are the culprits in fraudulent payments. According to the Association for Financial Professionals, checks represent 82% of financial fraud targets from organization reports.
They can alter easily to create counterfeits, with employees issuing them to nonexistent vendors. Since following back on check payments can be a rigorous and time-consuming process, it is best to avoid using them Association for Financial Professionals where possible.
If you must use checks, adopt positive pay. You can collaborate with your bank so that whenever there is a check to be run, you forward a check issue file to them.
The bank can match a check against your check issue file before they honor it. If they notice inconsistencies such as higher amounts, check numbers, or if not listed in your issue file, the bank can notify you to decline or authorize the payment.
5. Tighten Payments Approvals
Some businesses require extra approval, like an additional authorizing email for checks above $2500. However, fraud payments tend to cash in an amount just a little lower than the range that requires approval and quickly passes undetected.
Having extra approval points will help review information before approving large payments. Also, keep an eye out for amounts that are just below the range that requires additional review for approval. If you see such figures, follow up first and verify the information before issuing payments.
6. Conduct Surprise Audits
Review your accounts payable policies and procedures regularly and gather monitoring data on their fraud prevention preparedness. You can identify any gaps in your system by consulting with the staff. Digitizing audits are a great way to have a trail of transactions for your reports.
Adopting Artificial Intelligence and Machine Learning software can help detect errors where a human eye could have missed. AI and ML can see duplicate invoices and vendors, extra charges, and any suspicious trends in your payment system.
Advanced Automation Software can also verify invoice processing, track the invoice's activities, and match it to a vendor. This software can also help tie orders to receivables to avoid paying fraudulent invoices.