Fraud hits every business hard. Recent research from the Association of Certified Fraud Examiners shows that a typical organization loses 5% of its revenue to fraud every year, with a median loss of $125,000. What’s worst is that fraud typically goes unnoticed for an average of 14 months, resulting in average losses of $8,300 a month.
To avoid fraud instances, companies of all sizes should have complete visibility in their financial transactions and implement measures to both avoid and respond to fraudulent payments and activities. AP teams are the first line of defense and play a crucial role in preventing corruption and fraud.
To make sure AP operation plays a strong role in identifying and avoiding fraud in your organization, AP managers must follow these steps:
Identify Red Flags
- AP documents. Invoices that list the same address as an employee’s, and only have a P.O. Box number listed are red flags. Also look for key details missing on the invoices, such as purchase order (PO) number that would otherwise help reconcile standalone documents with the master file such as PO, and Requisition.
- Vendor file. Monitor the vendor files for a large number of inactive or duplicate suppliers. Watch for the same suppliers getting contracts or a new supplier getting a large, unexpected contract. Keep an eye out for invoices that don’t match the address in the vendor master file.
- External complaints. Complaints from suppliers about late payments or non-payments when your system suggests you’ve already paid them could signal an issue.
Steps to identify and Prevent Fraud
- Educate AP teams. AP staffers must know that they have a key responsibility for fighting fraud and corruption. It is important that AP managers go through training, and understand company policies.
- Be proactive. Conduct regular audits, keep an eye out for any suspicious vendor or employee activities, monitor KPIs closely, and watch for red flags.
- Provide the right resources. Stop thinking of your AP team as a data entry team or vendor database manager and start thinking of them as the first line of defense for fraud. Offer technology resources to automate as many of the manual tasks as possible. Moreover, invest in data aggregation, and intelligence platform that provides deep insights into transactions, vendor or employee anomalies.
Safeguard Against Fraud with AP Automation
Automating the AP process safeguards against fraud by taking the burden of data entry from AP teams, creating audit trails, offering one platform to aggregate and nurture document data, and providing deeper dive analytics to evaluate exceptions that tie to fraud. What’s more, a robust AP automation system can automatically flag outliers that appear fraudulent and turn data into intelligence.
Stopping AP fraud before it starts is critical, and having systems in place that can identify, deter and effectively react to fraudulent activities could substantially protect the integrity and future prosperity of a company. Although it may seem daunting at first, with the right training and technologies AP team can identify, deter and effectively prevent company-wide fraud. Learn how Itemize can help you automate AP and identify fraud.