Each year, fraud costs the average firm 5% of its income, just the fraud discovered and disclosed.
Because your organization’s money funnels to pay outside vendors, you work in an increasingly vulnerable area to fraud as an Accounts Payable expert. So, what can you do to avoid AP fraud from happening in the first place?
Stop sending out checks. Even though checks are generally a diminishing form of payment, they still account for most B2B payment transactions. According to the Association for Financial Professionals, checks were the top target for fraud attacks at their companies in 82 percent of cases. Check payments are vulnerable to fraud from the moment they are issued for the following reasons:
- Dishonest employees may issue checks without authorization.
- Checks can be easily altered or counterfeited by fraudsters.
- For scammers to use, checks contain bank routing and account details in plain sight.
These are widespread problems associated with accounts payable. Check fraud directly impacts your bottom line, and it is a time-consuming procedure to manage since you will have to make stop payments, reissue checks, close and reopen accounts, order new checks, and so on.
It would be best if you implemented positive pay. If you must continue to issue checks, the easiest method to combat check fraud is to work with your bank to develop a positive pay scheme. You send a check issuing file to your bank with affirmative pay for each check run. Before honoring a check, your bank compares it to your check-issuing information. The bank tells you and gives you the option to authorize or deny the check payment if the check is not on your check issue file or if the check information (payment amount, check number, etc.) does not match the check issue file.
Vendor verification is essential for check clearance. If a vendor calls you over the phone to update their information, such as their address or bank account number, make sure you confirm the changes in writing to ensure the validity of the change.
Conduct random audits. Review your AP department’s rules and procedures regularly, giving special attention to fraud detection and prevention effectiveness. Consult your AP staff and peers to discover probable flaws in your fraud protection policies and procedures.
It would help if you separated employee responsibilities. Although most employees are trustworthy, you must make efforts to prevent internal fraud. For example, issuing payments and reconciling accounts should be done by a different person. Make sure to keep the vendor setup and payment processes distinct.
In most cases, fraud occurs because spotting flaws and patterns can be difficult due to running a firm’s overwhelming day-to-day intricacies. When employees process hundreds of payments monthly, they do not always have time to search for patterns or double-check changes.
By reporting unusual changes, AP automation technologies can help firms enhance the AP process and prevent fraud. They are not distracted by minor details or prone to human blunders. Software like Stampli automates the AP process and centralizes communications, making fraud detection considerably easier.
Organizations can limit their fraud by practices like having the same person authorize invoices and payments when approvals are done on paper or over email, avoiding mistakes even more difficult.
A bank change request commonly comes in an unexpected email asking for the payment to be wired to another account, a common symptom of external fraud. The accounting department can begin using a bank change form to avoid this. It implies that if your AP department receives a call or an email requesting changes to banking information, it can only be executed once the designated individual has completed the form. Another method is to ask questions to verify the request’s legitimacy: What was the total of your most recent invoice? When was the last time you made a payment?
Another way to protect yourself from payment fraud is to digitize and automate your accounts payable process. An automated AP workflow system will be able to recognize duplicate payments considerably quicker and faster and highlight any problems or suspicious activities in real time by removing human error from the equation. Accounting personnel can then investigate the situation to see if it was a mistake or a possible fraud attempt.
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