Accounts Payable Fraud – Prevention and Detection
In a PwC Survey, back up by the Association of Certified Fraud Examiners 2018 Report, it is estimated that Fraud cost the UK Economy £193 billion in 2018. The Office for National Statistics (ONS) say that people are more likely to fall victim to fraud or cyber offences than any other crime and reported that 62% of cases reported were from businesses. It is estimated that 5% of every company’s annual revenue each year due is lost due to fraud. Half of these cases of fraud cite the lack of internal controls as the most frequent contributing factor.
Types of Fraud
Not a month goes by when fraud isn’t in the headlines for one reason or another. Accounts payable fraud has a particular shape and tends to require a level of authority, or collusion with authority, for it to be fruitful. Examples of fraud range from email hacking; where the AP department receive an email from what looks like a supplier but is actually a fraudster impersonating the supplier. They are asked for future payments to be made into a new bank account belonging to the fraudster. As a result system details are updated and future payments are made to the perpetrator! Or a fake supplier emails demanding payment for goods that were never received, and is so forceful the AP team pay up!
Sometimes the fraud starts from within, with staff members colluding with suppliers for kick-backs on orders, or even approve false invoices from an outsider and where they split the cash paid out.
There are cases of the fresh air invoices taking the shotgun approach. A fraudster sends out thousands of invoices of relatively low value hoping that a % of them will be paid with you question – its a numbers game and relies on believable products and small amounts that don’t require the usual level of control or checking. 10,000 invoices for £19.99 – if 20% get paid that’s £39,980!
The Graph below shows that the largest % of fraud was detected by tip offs and complaints but, when analysing the rest of the detection methods 37% of them are within the AP team’s remit.
Internal Controls 6% Internal Audit 11% Management review 18% Fraud focused analytics 2%
But with a team already under pressure just to process and pay invoices where is the time to ensure that these fraud checks are completed? The problems lie within time the following areas
Time Control Visibility
Time is a precious commodity in the AP department. Document, data entry and checking require many hours of dull repetitive work. It is error prone just due to the sheer nature of the task. People make mistakes, are easily distracted and lose track, a problem which is increased because they are multi-tasking trying to deal with supplier queries and chase invoices within the organisation and all the time the invoice mountain is building.
Controls are sometimes missed or avoided completely due to the sheer pressure of the job, invoices with missing details are put to the bottom of the pile, duplicates are entered on to the system by adding an extra number or letter, just to get them uploaded. Suppliers are approved without the usual checks because of pressure from other departments to get stock or supplies in.
Visibility is down to zero…In some cases there is literally no audit trail of the journey of an invoice … someone entered it, it was approved by a manager verbally over the phone as the department head was on holiday and it hasn’t been filed yet because the pile is huge!!
Often the invoice is ‘touched’ by multiple members of different departments, trying to recall the journey the invoice has been on is an almost impossible task.
So what can be done? Let’s look at this above scene again but with automation in place.
Robots within the workflow can capture email invoices, extract the information with OCR, check it thoroughly, and upload it to the ERP system. They don’t make mistakes or get bored with the mundane repetitive tasks so the information that is on the finance system is an accurate record of the information that the supplier sent. Even better than starting the process with an Email invoice, Robots can work with an e-invoicing network to ensure all data that is sent via the supplier is received electronically with no need to OCR it, and is digitally signed as being correct and being from an authorised supplier.
As part of the process they can automatically perform 2 or 3 way matches and reject any irregularities for review. Any invoices that fail matching are flagged to the AP and can be automatically sent other departments for exception handling.
Robots file your invoices and can recall the complete processing history and audit trail for investigation at any point in its lifecycle.
Robots relentlessly pick up on any missing information from invoices, such as PO number, invoice number, date etc. and reject them – often sending them directly back to the supplier to be resubmitted once correct.
They can identify duplicate invoices. An invoice that is already registered on the system is automatically picked up if a duplicate is presented. The duplicate invoice will be rejected and flagged to the AP team for checking.
They monitor for vendor price changes and altered bank account details, track unexpected increases in invoice volume, recognise unusual activity within supplier/invoice data and flag this to the AP team.
There are rules & controls embedded for approval levels – they cannot be challenged!!
The controls and access that come with automation mean specific responsibilities can be assigned to teams or individuals and be effectively policed. This systematic segregation of each AP task can also result in greater compliance and accuracy, and with no crossovers permitted, offers a highly effective guard against internal fraud.
Approvals & Rules can be set depending on the company review process, often with multiple approvers for higher limit values, all handled by the robot.
Robots provide status information for queries on all invoices and can trace and report on exactly where they are in their approval journey, audit trails showing the full journey of the invoice within the workflow is available at a click of a button no matter how people/departments have touched the invoice. And, lastly there is full visibility of all the data for internal audits. Reports can be downloaded to help with statement recs, supplier information, invoice amounts and reports using algorithms such as Benford’s law can be used to identify unusual invoice amounts
Deploying a robot powered AP automation solution is the most efficient way to enable automated checks, avoid errors, ensure compliance and achieve a straight through touchless process, and this all helps with the detection and prevention of fraud. But it should be clear that automation in AP is not about replacing the humans. It’s about helping them work smarter and giving them the tools to be proactive, setting controls and reviewing processes to prevent fraud. Of course it also help make the workday a little more enjoyable too, by taking away the boring and mundane jobs.
The roles of the AP team are evolving and changing, and it’s important, in the face of this evolution, to ensure that your AP team are onboard the automation journey by upskilling them to use and embrace this technology – in fact to become automation evangelists perhaps!
Accounts Payable Fraud - Prevention and Detection
Deploying a robot powered AP automation solution is the most efficient way to help detect and prevent fraud.Get in touch!