To a criminal exploring ways to steal from a business, the accounts payable department often looks like the equivalent of a poorly guarded cashbox. The 2016 AFP Payments Fraud and Control Survey found that 73 percent of all U.S. companies experienced payments fraud last year.
Technology and automation take the slack out of manual processing, making it more difficult for crooks, who rely on inefficient processes, to sneak fraudulent invoices through. Reducing these losses should be part of any business case for AP automation.
Types of Accounts Payable Fraud
Invoice fraud can show up in many different ways. You could have phony invoices drafted by fake vendors or even your own employees. Vendors could knowingly (or unknowingly) charge higher prices than agreed to without you noticing the difference. Vendors could also add unauthorized charges (i.e. charging for freight that was supposed to be included). You can receive duplicate invoices – whether intentional or not, if you’re using a paper system you might not notice you already paid them! If you have a credit with a vendor (which you would ideally avoid with an automated system), your credit might not show up on the invoice.
Check fraud is the most common. It can appear through phony, duplicate, stolen and altered checks. Unfortunately, paper checks are incredibly easy for criminals to use to steal from your company.
Electronic fraud can rear its ugly head through phishing emails, spam links on websites, malware, unauthorized ACH transactions, and unverified change of bank account requests. Criminals also use a check that is rejected via positive pay to submit an ACH debit instead.
Purchasing Card Fraud
Purchasing cards are subject to fraud as well – you could have employees charging personal items, or items not allowed in your policies and procedures, charging just under the limit to avoid restrictions, or even charges by terminated employees.
Travel & Expense Fraud
T&E fraud is rampant from outlandish spending ($300 bottles of wine), to sneaking a gift card onto a regular expense that might not be scrutinized, to submitting extra miles for reimbursement. There’s also the opportunity to submit an expense twice, or to cover meals for a personal guest instead of a client.
The Association for Financial Professionals recently released their 2016 Payments Fraud Report. Here are the highlights:
- 73% of companies were targets of payments fraud in 2015
- Checks continue to be the payment method most often targeted with 71% of companies experiencing actual or attempted check fraud
- After checks, wire transfers were the second most popular vehicle for payments fraud, with 48% of companies exposed, a significant increase from 27% in 2014
- 42% of companies reported that the incidents of fraud attempts increased in 2015 (with 47% reporting no change)
- The security of mobile payments is a chief concern for 75% of companies
- 64% or companies reported exposure to business email compromise
In a manual, paper-based environment, your organization’s documents are constantly at risk. Physical copies of sensitive information can be easily misplaced, altered, or shredded. If these documents are lost or tampered with, you no longer have access to the data necessary to effectively operate your business.
With automation, the most crucial key is to create a pattern of permission where no one person has the ability to manage the system in its entirety without checks and balances. No one person should be able to create a vendor, enter an invoice, approve that invoice, pay that invoice and reconcile transactions.
Invoice automation is the first step in the process. These systems speed up the processing of invoices as well as providing defense in the form of detecting fraudulent or duplicate invoices. Automating invoices can cut down on late payments and alert you to investigate when a supplier doesn’t match up in the master vendor list.
Workflow automation’s biggest benefit is visibility. This step allows you to have “more hands in the pot” while still moving faster than a paper-based system. Each person on the approval team can easily see invoices as they progress through the payment process, reducing the risk of duplicate payments. It also eliminates time wasted waiting on approvers by allowing multiple people to approve invoices simultaneously, instead of sequentially, as well as allowing approval from mobile devices.
E-payments are probably the best place to start with AP automation. Single-use virtual credit card numbers become invalid after the transaction is complete, eliminating the risk of your stored card number being compromised. One virtual credit card number per transaction enables accurate reconciliation and accountability. They also help with cash flow – you have full control over payments and can choose to pay vendors immediately, or schedule payments for future disbursements.
The savings from eliminating most of your paper checks (which cost $5-10 per check), coupled with the rebates you get from increased card payments make automating this piece as close to a no-brainer as you can get. E-payment automation with globalVCard pays for itself and you can finance the rest of your automation program with the rebates.
By automating your AP, your accounts payable department may still resemble a stuffed cashbox to those inclined to larceny, but at least it will be locked up tight. Are you ready to automate?