It's easy to assume that accounts payable fraud is a problem for other companies. But the statistics say it is surprisingly common. In a 2013 study underwritten by J.P. Morgan, the Association for Financial Professionals found that "61% of surveyed organizations experienced attempted or actual payments fraud." Learning how to catch red flags is one of the most important things you can do to protect your organization.
Spotting Fraudulent Accounts Payable Activity
Generally, spotting a fraud scheme doesn't require an investigation by Sherlock Holmes--or his ledger-auditing modern-day equivalent. Your odds of discovering fraud are helped by the fact that there's a pretty good chance that someone taking a criminal shortcut is also cutting corners on covering their tracks. Even if you do run up against a more sophisticated scheme, one thing is certain: The less attentive you are to your accounts payable activities, the better the probability that theft attempts will be successful. To help protect yourself, it's important to stay vigilant.
Look for Employees Who Never Take Vacation or Sick Days.
Dedication to the job is great, but you might want to look closer at the employee who never, ever calls in sick. Same goes for the employee who never asks for or takes a vacation. Could it be that employee "has" to be on the job to keep their fraud scheme going?
Do You Have an Employee With a Sudden and Unexplained Lifestyle Improvement?
Maybe that improvement is at your companies expense. It's very hard for anyone to pass up the opportunity to improve one's quality of life. If you're writing the checks, ultimately you do have some inside knowledge on what each employee should be able to afford. Make sure to use it.
Keep an Eye Out for Suspicious Data Patterns.
Any of these examples are likely causes for concern:
Excessive purchases of unneeded items,
Lots of shipments to PO boxes,
An inordinate amount of weekend or holiday delivery dates,
Consistent preferential payments to a vendor, or
Invoices without folds (this may indicate a lack of normal handling activities).
Taking Preventative Measures
Here are a few simple, proactive steps you should consider to reduce the chance of fraud in your accounts payable area.
Convert payments to ACH or other electronic methods. ACH or electronic payment methods take more time initially to establish compared to simply printing a check to a vendor. Perhaps because of the time investment required, they tend to be a less likely target for fraudulent transactions.
Reconcile checking accounts promptly. Allowing time to lapse simply allows more time for fraudulent activity to occur. You can close the window with prompt reconciliation.
Keep blank check stock and signature stamps under lock and key. Limiting access to check stock to specific individuals helps to reduce fraud.
Centralize your check writing function so that the review process needed is minimized. The smaller the number of individuals involved in check writing, the easier it is to make good judgments about trust. Also, if you have the bad fortune to run into theft, you've limited your pool of suspects.
Immediately notify your bank of changes in check signature authorizations. Bank provided check verification services can offer another level of protection.
Separate check writing and checking account reconciliation. Never have the person who writes the checks also be the person who reconciles the checking account. This is asking for trouble.