Fraud can wreak massive havoc for your company in terms of your reputation and finances. AP fraud is often attempted in the form of duplicate invoices being submitted for payment. As per the Association of Certified Fraud Examiner’s report of 2020, a typical fraud case lasts for fourteen months before it is identified and causes a loss of almost $8,500 dollars per month.
Criminals/fraudsters tend to target small organizations with the idea that they lack the workforce to spot fraudulent activity. They target large businesses because they think that employees are lost in the madness of the workload. To protect an organization, AP staff have to be extremely careful. Or else, they could process fake charges.
Complete visibility from end-to-end with the ability to process each invoice knowing the full context is essential to prevent paying fraudulent charges. Relevant data should be present between approvers, accounts payable, and the people who receive goods/services provided by the supplier.
You Cannot Find Fraud in the Overall Picture
When you look at the numbers, you will not see fraud. The control over your AP is in detail. You must look into individual transactions, search for potential loopholes, and apply controls across the board. When you compromise internal controls or use any special exception, you become a magnet for fraudulent activities.
Fraud is Present Inside Too
Just because somebody works for you does not mean that they are entirely exempt from suspicion. Your workers are the ones who know where system weaknesses are present. Even your long-term staff can commit fraud. So, it is essential to leverage consistent control to minimize the risk.
Lack of internal control also contributes to nearly 32% of fraudulent activities. More than half of occupational frauds come from accounting, management, sales, and operations.
Deploy a Zero Tolerance Policy
Avoid giving exceptions to your friends or write anything off as a mistake. When you see fraud, misconduct, or corruption, you need to terminate the staff. Tolerating such things will harm your business.
Implement Internal Controls Throughout the P2P Method
Segregate your duties across the procure to pay method. To do this, you need to ensure that no person does more than one part of the procedure. It creates a check and balances approach to aid in catching errors that another staff may have missed.
Prevent Weak Practices
Search through the list of poor/weak practices. If you find it, then you can answer yes to these following questions, transform the process.
- Does your management override your methods?
- Do you allow rush checks?
- Does one-person control multiple parts throughout the P2P method?
Excessive rush checks add a sense of urgency that makes it easy to pay more than you require or pay something that you do not owe. If management can override your methods, there’s a group of people in your company that can do whatever they want for their gain. Hence, limit the number of staff who can modify the master vendor file. Insist that the consistency is used across everything in the master file, from naming convention to the ways to enter invoice numbers. Or else, you will end up with duplicates that will lead to a time-consuming clean-up procedure during an audit.
Eliminate inactive suppliers from the master file to prevent duplicate payments and minimize the overall fraud. Stop your employees from entering suppliers into the supplier file if they notice one is missing. In a few organizations, staff who process invoices will add suppliers automatically if they notice one that is not in the file. It creates duplicate entries for the same supplier and may introduce fraudulent suppliers.
Leverage Controls for All Payment Types
While all types of payment need control, it is not possible to depend on the same controls for all payment procedures. You cannot use the same system to avoid check fraud that you would use to prevent business card fraud.
For example, positive payment can aid you with checks, ACH payments, and direct deposits. With this, you can match incoming ACH credits and debits of your established business rules to determine trading partners that are enabled to debit money from the account.
A few banks offer the option to set up rules for incoming transactions too. Also, you can receive a notification every time a check is presented for payment and choose between return or pay. It’s a good option for organizations with various locations or teams to make deposits into a single account, where check fraud is common.
So, to minimize card fraud, establish spending limits by staff, commiserate with responsibility level. Create a compliance review each month, so that there’s a permanent oversight function to deter fraud. The person submitting requests for new cards shouldn’t be the person who gets the new cards as this prevents unauthorized new account setup. It must also be done when it comes to paying the card issuer to ensure that payments are legitimate.
Ensure address verification is on when you have an online store. If you have a high dispute rate but have a zero-decline rate it is a good indicator that criminals have found a loophole to exploit. Set up internal controls, such as needing the original signature, dual signatures before anything goes through. It means that both the requestor and approver have to sign before anything moves forward.
Accounts Payable Automation is Necessary
When appropriately deployed, accounts payable automation can eliminate human error from the process. It minimizes your fraud risk and also helps to save money by paying only for goods/services billed and received. This makes it easier to pay invoices on time, thus enabling you to capture early payment discounts.
AP automation solution sets up workflows based on transaction limits, volumes, and so much more. It ensures that staff can only spend what they are allowed. The ability to add suppliers or edit supplier addresses, for example, can be restricted to a small group of employees.
Audit trails can track who takes what action and when, so that if any red flags arise, it becomes easy to determine who to reach out for clarification.
Stay Updated with New Fraud Prevention Processes
Each time you think you are aware of all fraud schemes, there will be something new to worry about. It doesn’t matter what you have in place to protect yourself and your system, there is always someone doing the best to get around in one way or the other. This is the reason why it is essential to regularly visit the fraud prevention strategy and upgrade it when needed. Doing this means you have to assume the potential fraudsters are intelligent and continuously trying to tear down the defenses. The more fraud detection measures you have, the better you can protect bank accounts along with your business reputation.