Accounts Payable Fraud Detection
There are various ways through which accounts payable fraud can be detected and PAID Analytix can offer a solution that can help companies reduce the stress associated with finding suitable protection means.
| Quick Facts | |
|---|---|
| Damages incurred through AP frauds | - financial losses, - vulnerability to other financial problems in the future |
Accounts payable fraud types | Internal and external accounts payable frauds |
Internal accounts payable frauds | - shell company frauds, - personal purchase schemes, - vendor master file tampering, - pay-and-return frauds |
| External accounts payable frauds | - billing schemes, - data stealing, - kickback and check frauds, - subcontractor schemes |
| How to detect accounts payable problems | Through: - duplicate payment and overpayment verification, - invoice verifications, - audits |
| Types of companies exposed to frauds | All companies, small and large can be subject to AP frauds. |
| Accounts payable frauds through invoices | - duplicate payments, - large invoices split into smaller ones, - overpayments can be suspected as AP frauds |
| Possibility to prevent fraud (YES/NO) | Yes, through regular account payable verifications |
| Availability of automated software for fraud prevention(YES/NO) | Yes, an accounts payable software can be used to prevent fraud |
| Audits as a way to detect accounts payable fraud | Internal audits conducted regularily can prevent AP fraud. |
| Types of frauds addressed by an overpayment protection software | - duplicate payment and billing schemes, - invoice inconsistency frauds |
| Documents verified for preventing AP frauds | - invoices, - discounts, - allowances, - accounting notes |
| Duration to search for AP inconsistencies | A few minutes by using an automated soft |
| Advantages of using automated AP software | - anytime access to the soft, - easy to setup and use, - immediate results, - highlighted AP inconsistencies |
| Accounts payable fraud detection services availability (YES/NO) | Yes, through our accounts payable audit services. |
| Signals of AP fraud | - price changes; - information modifications; - unusual/suspect activities in vendor files, etc. |
Signs of billing schemes as part of AP fraud |
- issuance of false invoices; - payments directed to an unknown account; - higher amounts on invoices, etc. |
Signs of check fraud as part of AP fraud |
- alternation of payee or amount on the check; - forged signatures; - issuance of false checks |
| Payment methods leading to AP fraud | - check; - wire transfer; - electronic payments, etc. |
| Verification of invoice inconsistencies availability (YES/NO) | Yes, our software will verify the accuracy of invoices. |
| Verification of account entries as part of AP fraud detection (YES/NO) | Yes, all account entries can be verified in order to detect AP fraud. |
| Other available procedures | - verification of payments to be processed for payment; - checking other accounting documents; - verification of vendor information |
| Internal audit recommendations (if any) | Internal audits are recommended whenever inconsistencies are noted in accounting documents. |
| Report issuance after an AP audit (YES/NO) | A report indicating changes in usual entries is issued as part of AP fraud detection procedures. |
| Security features of automated AP detection software | - protection of misuse of the software; - specific login features based on user and passcode; - possibility to set user restrictions |
| Availability of machine learning protocols (YES/NO) | Yes, our AP accounts payable software relies on machine learning to check for invoice inconsistencies. |
| Types of companies prone to AP fraud | Small and medium-sized enterprises are usually prone to AP fraud. |
| Causes of AP fraud | - lack of strict internal control regulations; - relying on traditional accounting tools; - understaffed AP department, etc. |
| Consequences of AP fraud | - financial loss; - client/vendor complaints; - loss of trust among distributors, etc. |
| Other available services (if any) | - recovery audit services; - financial recovery solutions as part of AP fraud detection; - financial loss prevention. |
Types of accounts payable fraud schemes
Generally speaking, AP fraud can be divided into two large categories:
- internal frauds that are committed by people working within a company;
- external frauds that are committed from outside the company.
However, the same accounts payable fraud detection methods can be used to detect both types of schemes that could affect a business.
Internal accounts payable frauds can be divided into:
- shell company schemes through which an employee who is well aware of how the business works create a fake business under which it bills the employer for goods or services it does not receive;
- pay-and-return frauds through which an employee will cause an excess payment to the company’s vendors or suppliers;
- personal-purchase schemes through which an employee buys various items for personal use on the account of the company;
- vendor master file schemes through which an employee will tamper with the file by committing various fictional payments or billing fraud;
- kickback frauds which imply the creation of inflated invoices;
- check fraud which is one of the most common types of AP frauds.
External accounts payable frauds can be divided into:
- billing schemes;
- delivery of low-quality goods at full or higher prices;
- subcontractor schemes;
- data theft;
- kickback frauds;
- check fraud.
It can be noticed that some of these schemes can be categorized as both internal and external which is why the same accounts payable fraud detection method can be used for finding both types of issues.
One of the best reasons to complete accounts payable audit is to eliminate fraud. The large number of invoices issued by companies nowadays can pose serios problems to companies when it comes to fraudulent practices. Our automated solution is designed to adjust to your company’s specifics from this point of view.
What are the red flags that can signal an accounts payable fraud?
When searching for an accounts payable fraud, there can be some red flags that can trigger warning signals. Among these, the following can be obvious:
- price changes after a long period of time and without prior notification;
- the appearance of unknown or unusual vendors in the vendor master file;
- large invoices that are broken down into smaller ones;
- invoices with different numbers from the company that issues them;
- large numbers of inactive and/or duplicate suppliers;
- blank checks or checks that are not signed.
Complaints from clients and even suppliers can also lead to an AP fraud.
There are several ways through which accounts payable fraud detection can be used for stopping such schemes, however, when traditional methods accounting methods are used, the procedure can be lengthy and slow.
PAID Analytix proposes a different approach where Artificial Intelligence (AI) plays an important role.
How to detect AP fraud
Companies use various methods to pay their invoices. Checks, electronic payments, and wire transfers are quite common. They can also lead to duplicate payments when an invoice is received through different channels which can lead to financial losses in the long run which can open the door to other problems, such as exposure to fraud.
The detection of accounts payable fraud schemes can be completed with the usual accounting tools, but also with the help of our AI solution which implies using software that will complete the same verification procedures only much faster.
The main ways to detect accounts payable fraud are:
- accounts payable audits;
- verification for duplicate payments;
- verification for invoice inconsistencies;
- matching invoices with vendor files.
These are just a few of the ways through which our overpayment protection software can be used to detect AP frauds quickly and efficiently as the results are indicated in a matter of minutes after the invoices are entered into the system.
Once all the issues are signaled, the verification of the respective invoices and vendors or suppliers will be easy to complete and thus prevent further financial losses. We also offer accounts payable audit services.
Accounts payable frauds are quite common
Accounts payable fraud schemes have increased alongside the number of companies and, according to the Academy for Corporate Entrepreneurship (AFCE):
- in 2018, the total cost of fraud exceeded 7.1 billion USD based on a survey conducted in 125 countries;
- the study focused on 2,690 cases and reported that most of the times billing fraud was the most common scheme;
- such schemes cost organizations around 100,000 USD.
Another study indicated that in 67% of the cases fraud was committed by insiders.
If you want to find out more about how to detect and prevent accounts payable fraud, do not hesitate to contact our specialists who can advise you on the best course of action.
Radu Fertonea is the founder of Paid Analytix and Senior Manager with Executive MBA degree (Maastricht School of Management). He was director of operations at Societe Generale European Business Services, in charge with: Management of the Source to Report practice (Procurement, Accounts Payable, Accounts Receivable, Management Accounting) | Global redesign of end-to-end source to report activities | Consolidation of the Finance exercise for the European operations of Société Générale (100% coverage target by 2020) | Transition Management, Process Standardization and Continuous Improvement | People Management – team of 150+. With a broad experience in the financial field and after working with large societies which handle thousands of payments every year, came up with the idea which led to the creation of Paid Analytix.
