According to Basware, 5% of an organisations revenue is lost to occupational fraud, 86% of which can be linked to the accounts payable (AP) process.
In this article, Procurement Magazine looks at what AP fraud looks like, the different types of AP fraud, and how organisations can investigate and prevent threats.
What is accounts payable (AP) fraud?
Often a threat that flies somewhat under the radar, accounts payable (AP) fruad involves asset misappropriation, primarily fraudulent expenses.
While employees tend to have the most access and opportunity to commit such fraud, hird-party vendors and even malicious actors can commit AP fraud. Parties could be working together to siphone money, or it may be entirely accidentally as a result of miscalculations.
Common types of accounts payable (AP) fraud:
- Billing Fraud: Employees set up a fake supplier, to accept payments from a company through invoice fraud. They may also duplicate invoices to real suppliers to siphon off money.
- Cheque fraud: Cheque tampering is also a common way ot commit AP fraud.
- ACH fraud: Employees use their ACH bank account to intercept and receive funds meant for a company.
- Reimbursement fraud: Taking advantage of the expense reporting process by inflating their expenses, faking receipts, or claiming costs not covered.
- Bribery and kickbacks: Corporate bribery involves an employee receiving a gift for signing a specific supplier.
Investing and preventing fraud
In order to ensure an investigation is conducted properly, it is vital for organisations to conduct both an internal report and bring in an external auditor.
Organisations should also consider:
- Preserving evidence
- Setting up a fraud control committee
- Verify suppliers
- Reconcile accounts
- Investigate transactions
- Reveiw cheques before writing them
Seven prevention tips for accounts payable (AP) fraud
- Employee rotation: Rotating employees, while it may require additional training, can help to reduce the likelihood of employees or suppliers attempting fraud and make it easier to notice red flags.
- Mandatory holiday: This can help to have a fresh pair of eyes review documentations and pick up on fraudulent activity.
- Random audits: Unscheduled audits can deter potential fraud and make it easier to spot issues.
- Automation: A significant way to prevent fraud is with the use of technology. Automation can match invoices, scan for duplicates, highlight errors, and leave a clear trail.
- Clear policies: it is important to ensure that employees understand company policies, often fraud can occur because of a misunderstanding instead of harmful intentions.
- Regularly updated data: Organisations can prevent lengthy fraud schemes by ensuring that supplier data is updated frequently.
- Tip networks: Organisations with a tip network are 10% more likely to detect fraud, due to it giving employees a clear point of contact should they notice something.