Common Accounts Payable Risks and How to Reduce Them

Thursday, Apr 9th 2020
Common Accounts Payable Risks and How to Reduce Them

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Last year, PwC uncovered a $7.4 billion accounting fraud in Steinhoff, a global retail giant based in South Africa. The scandal is said to be the biggest in the country’s corporate history, led by a small group of top executives and outsiders. “The transactions identified as being irregular are complex, involved many entities over a number of years and were supported by documents including legal documents and other professional opinions that, in many instances, were created after the fact and backdated,” Steinhoff said in its response to the media.

Accounting fraud is not a new phenomenon and no business, regardless of its size, is immune to the risks. In 2018, 82% of financial professionals in North America reported to have experienced attempted or successful payments fraud – a 20% increase from the previous four years.

Fraud can be committed by external or internal parties. Without proper controls, it becomes easier for employees to exploit any weaknesses. Whether or not fraud occurs, the accusation of fraud alone can cause severe reputational damage. In 2019, Harry Markopolos, known as the accounting sleuth, accused General Electric (GE) of being engaged in an accounting fraud so vast that it would soon be forced into bankruptcy. Markopolos is famed for sounding the alarm on the largest-ever Ponzi scheme, the Bernie Madoff Ponzi operation. His report hasn’t been proven yet, and while Wall Street shrugged off Markopolos’ claims, it was enough to knock 10% off GE’s stocks and bring it to its lowest market value in 11 years. Businesses cannot discount reputational risks and loss of trust that result from attempted or successful internal fraud.

Types of Internal and External AP Fraud

According to the Association of Certified Fraud Examiners, in 2018, there were more than $7 billion in losses due to fraud worldwide. When organizations rely on manual processes, it becomes easier to find vulnerabilities within the system and become a victim. Over 71% of organizations acknowledge that manual data entry and inefficient processes are the top pain points for their company. Here are the common types of internal and external fraud:

Internal Fraud:

False billing: This occurs when false invoices are created for self-payments. In this type of fraud, we generally see an employee working independently, or in collusion with an external party.

Fraudulent payments: An employee can make unauthorized payments, usually via check or ACH. Businesses should regularly audit rapid or unusual changes in financial reports.

Tampering with financial reporting: Takes place when an employee makes unapproved changes to financial data after payments have been processed.

External Fraud:

Phishing scams: This happens when an external party fraudulently tries to gain access to sensitive information such as credit card, PIN, financial information or passwords. Companies should also be cautious of unsolicited emails that require clicking through.

Duplicate payments: This has been identified as one of the top payment pain-points for companies. Vendors can be paid more than once due to receiving the same invoice in different formats, or because of employee error.

Unapproved vendors: This happens when a payment is made to a fictitious or unauthorized vendor for non-existing or fraudulent goods and services.

How Does AP Automation Reduce Risks?

  • Digital Audit Trails: Finance professionals are using technology with the aim to secure enhanced access to data, and interrogate different parties to improve the overall audit quality. With Beanworks AP automation, internal audit teams have greater visibility into financial data and reports. They gain insight into any risks involved and enable accurate financial forecasting. An automated audit process reduces the risks within AP by tracking erroneous payments, validity of payments, vendor discrepancies, and any inconsistencies within the system. This approach to AP also allows organizations to stay ahead of compliance requirements for any tax filings or audits.
  • Automated Approval Processes: Beanworks automates the invoice routing process so that organizations can track an invoice throughout its journey – when it was submitted, when it was approved, who approved it, and when it was paid. By cutting out the paper process and storing everything online, team members can collaborate to quickly resolve issues and make the chain of approval move faster. This means that comprehensive approval controls can be put in place and more easily managed. With greater transparency, there is a reduction in risk, and increase in control.
  • AP Workflow Reporting: With AP workflow reporting, the AP team can evaluate and analyze invoice data and make improvements that address any problems or inefficiencies. They can identify bottlenecks in the approval process, enabling AP managers to adjust workloads and predict busier and slower times throughout the year. Beanworks AP automation provides tools to monitor spend. The software can identify any duplicate invoices, extra charges, or suspicious activity, as well as complete regular spend analysis.

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