How to Protect Your Business Against Fraud

Fraud continues to plague organizations big and small, and with a potential cash crunch looming over many businesses, fighting fraud is more important than ever. But it takes a lot of work for AP teams, regardless of size. 

Sure, a small business with a two-person team risks overworking or giving away too much financial access to one party. But a larger, mid-sized business with a full accounting department may not have the time, tools, or process to protect against fraud. 

According to the Association of Certified Fraud Examiners (ACFE), it can take at least 12 months to detect fraud, with a median loss of $117,000. But for many industries, this amount is significantly higher. For example, real estate companies suffer a mean loss of $430,000.

But there are many types of fraud. For AP teams, credit card fraud and return fraud aren’t nearly as relevant as other fraud schemes. So, before diving into different fraud protection strategies, let’s look at some of the most common and expensive types today. 

Types of Occupational Fraud for AP Teams

The fact is, skimming money from the cash register or inflating reimbursement costs are just the tip of the iceberg when it comes to fraud in the workplace. And as technology continues to evolve, the number of threats continues to rise.

Let’s take a look at the types of business fraud you’ll want to control for:

Asset misappropriation

As the most common type of occupation fraud, asset misappropriation affects nearly all businesses. Skimming money off the top of transactions and forging checks are two examples of how this can play out in the accounting department. With more payments being sent via P2P transactions, such as through Zelle, this can become even easier to miss.

Financial statement fraud

In some cases, an accounting professional may cook the books and modify financial records—including sales and revenue. This can be done to hide embezzlement and make the company look “better” to investors. 

Invoice fraud 

A common workplace fraud scheme for accounting or sales employees to siphon funds is through fake invoices. Typically, an individual will create an invoice from a fake vendor and have the money directed to their own bank account. 

Identity theft

One way a fraudster can tap into your business resources is by pretending to be an employee or third-party vendor. But they don’t just need to steal money directly from the company. They can also sabotage relationships with your customers and suppliers. In some cases, the scammer might fully participate in identity theft, and your employee has no clue. But in others, your worker could be working together with the fraudster.  

Payroll Fraud

There are a few different ways that employees can manipulate payroll records, including lying about hours worked or sales. 

Tax Fraud

Tax fraud deals with attempts to misrepresent financial information to the Internal revenue Service (IRS) to take advantage of exemptions or credits. This form of fraud leaves the business in a precarious position if this is uncovered in an audit.

Why Are Good Internal Controls Important to Reducing Fraud?

There are several measures you can take to reduce potential fraud. The key here is to limit the opportunity for fraud while simultaneously being able to identify potential scams faster.

  • Limit users who can access admin controls.
  • Ensure that financial tasks aren’t entrusted to a single employee.
  • Separate accounts payable and accounts receivable functions.
  • Account reconciliation should be done by an employee who did not deal with the original records.
  • Cross-check invoices with services and goods purchased.
  • Conduct background checks on new suppliers and employees.
  • Make sure earnings are not unreported. Do not inflate expenses.
  • Take security measures for sensitive materials, such as tokenization or limited account access.
  • Use automated software for payroll, invoice matching, and similar repetitive tasks to limit chances for manipulation. 
  • Require approvals for payments, payroll, and other money-centric activities.
  • Set limits for credit card maximums and users.
  • Ask employees to submit original receipts of all purchases.
  • Perform random audits.
  • Avoid related party transactions that could be translated as a conflict of interest.

Who Do You Report Fraud To?

To initiate the process, you’ll need to submit a report. Who you report to will depend on your organization. Many businesses choose to have an anonymous tip hotline so employees can report without fear of retaliation. 

After your team has received a report —whether it’s HR, your risk management team, accounting, or another department — it’s time to open an investigation. If you don’t have an anti-fraud person on staff, it’s usually better and cleaner to bring on an external audit. In addition to gathering financial documentation, it’s common to conduct interviews with potential witnesses. 

Once fraud appears highly likely and definite, you will want to contact law enforcement. Depending on your insurance and whether you plan to sue for damages, you may need to contact your insurance provider. 

After you have a clear picture of what’s transpired, reviewing policies and processes to prevent a similar instance in the future is important. 

Can Outsourced Accounting Services Prevent Bank Fraud? 

No matter the size of your company, outsourcing accounting services is one way to prevent fraud. You can choose to outsource a fraction of your accounting tasks, or all of them, depending on your needs. 

There are a few reasons outsourcing can be a solution for handling fraud:

  1. Third-party firms need to ensure quality and security to attract clients. Committing fraud or refusing to fire potential internal fraudsters could devastate their business. Thus, these organizations tend to have rigorous procedures to reduce potential fraud cases. 
  2. Accounting firms divide roles among their professionals to accelerate filing and reporting. 
  3. These outsourced professionals have the funds and reason to invest in high-quality accounting tools, such as AP automation solutions.
  4. When you outsource, these companies review the books monthly and may also send you updated reports. Depending on your chosen solution, your accounting partner may work out of your bookkeeping software, so you always have access to spontaneous audits. 

Don’t Give Fraudsters a Chance

One of the most cost-effective internal tools an organization can use to mitigate fraud risk is automation. Your staff cannot alter invoices or forge payments through intelligent AP automation. The combination of fast data and accurate data extraction with verification and risk scoring makes it easier to spot suspicious vendors or invoices and accidental duplicate invoices or overpayments.

Itemize empowers teams by reducing the need for manual data entry by 98%, increasing accuracy by 99%, and reducing duplicate payments by 100%. The Itemize platform integrates with all major ERP/Accounting software. 

To learn more about how we can help your business cut out fraud and boost savings, request a demo today. 

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