Strengthening cybersecurity: why you should have fraud checks on accounts payable
Accounts payable fraud refers to a type of financial fraud in which a person or group of people falsify or manipulate financial records related to accounts payable in order to steal money or assets from a company. This can involve creating false invoices, altering payment dates, or manipulating vendor information. The goal of this fraud is typically to divert funds to the perpetrator’s own use or to benefit a third party. Accounts payable fraud is considered a significant problem in business and a major contributor to financial losses for companies.
According to a study by the Association of Certified Fraud Examiners, financial statement fraud and misappropriation of assets, which can include accounts payable fraud, were the most common types of fraud reported in their 2020 report, making up over 60% of all fraud cases in the study. Nonetheless, it is difficult to determine an exact amount of how common accounts payable fraud is, considering that many cases may go unreported. In turn, the report also suggested that small businesses are at a higher risk of experiencing fraud – typically because they have fewer resources and less sophisticated prevention measures in place compared to larger organisations. Regardless, in today’s rapidly growing technological landscape, it is imperative for businesses to have fraud checks on accounts payable.
1.Implementing automated systems:
- Accounts Payable Automation minimises human involvement by eliminating menial, error-prone tasks to help create a swifter, more flexible, and reliant invoicing process.
- AP Automation is highly beneficial in catching fake invoices that would otherwise be unquestioned by a human eye. For example, one way companies may be scammed is through fake invoices with small amounts or invoices that have the same name as a legitimate supplier. However, AP Automation platforms are designed to flag unexpected invoices for manual review. The system is built to have expectations for the number of invoices to be received and the amount on them – if an invoice or more does not match the platform’s expectations, it is automatically raised as a red flag for employees to investigate.
- AP Automation also gives companies control for specific people to access invoices during processing, thus limiting the chance of fraud to occur externally. Paper invoices often go through many individuals before going through the AP department, risking the documents to be stolen, altered, or lost. AP Automation prevents this by having suppliers directly submit their invoices into the automated system.
You might want to know: Top 7 reasons to add AP Automation to the mix
2.Employ fraud detection software:
Fraud detection software typically utilise a combination of strategies to identify potentially fraudulent activities. These may include and are not limited to:
- Machine learning: Some fraud detection software uses machine learning algorithms to learn from historical data and identify patterns that indicate fraud. This can make the software more effective over time, as it adapts to the specific fraud patterns of the organisation. For example, Danske Bank (a Nordic universal bank) leveraged AI and machine learning to modernise its fraud detection techniques. Subsequently, the bank experienced a 60% decrease in false positives and a 50% increase in true positives. This ultimately contributed to Danske Bank streamlining invoicing processes whilst illuminating the growing issue of accounts payable fraud.
- Rule-based systems: The software may also be programmed with specific rules that it uses to identify potential fraud. For example, it might flag any payment over a certain dollar amount, or any payment made to a vendor located in a high-risk country. The best fraud detection software projected for 2023 include, Signifyd, Riskified, ClearSale, Sift, and more.
3.Utilise internal audit:
- Internal auditing can play a key role in reducing fraud in accounts payable by providing an independent and objective evaluation of the organisation’s internal controls and financial reporting processes.
- Internal auditors can assess the effectiveness of internal controls, such as segregation of duties and approval processes, to ensure that they are designed to prevent or detect fraud.
- Auditors may use control tests to obtain evidence of fraud, as well as assessing the adequacy of the controls in place by the organisation. Based on their findings, internal auditors can recommend improvements to the organisation’s internal controls and financial reporting processes to reduce the risk of fraud. Moreover, they are able to communicate the present fraud risks and the reliability of company controls to the employee, providing the opportunity to train them and understand the importance of preventing fraud.
Hence, running fraud checks on accounts payable can help a company detect and prevent fraudulent activity including false invoicing, duplicate payments, and embezzlement. This can help the company save money, protect its reputation, and comply with regulations.
Additionally, regular fraud checks can help a company identify weaknesses in its internal control and make improvements to prevent future fraud. To work toward a more cyber-safe future, companies may invest in Accounts Payable Automation, fraud detection software, or run internal audits.