Strategies to Detect and Prevent Accounts Payable Fraud

Accounts Payable Fraud

After the Sarbanes–Oxley Act was passed in the year 2002, many firms were forced to review their internal controls for Accounts Payable. Although implementation of effective internal controls could be a tedious job, it could prove to be extremely beneficial in preventing frauds. One of the most common ways in which a company can encounter significant financial losses is Accounts Payable fraud. It’s often perpetrated by the employees of the organization and could go undetected for a long period of time leading to major losses. The signs for such frauds cannot be always easily observed. But fortunately, there are effective strategiesto detect and prevent accounts payable frauds. However, once you detect the crime, it’s quite easy to identify the offender as there are always paper trails leading to the perpetrator.

Take a look at some of the effective strategies to detect and prevent Accounts Payable fraud:

1. Check Invoice Peculiarities

Check for any peculiarities in invoices. If they are not sequentially numbered or if two or more invoices share the same number, there are high chances that a false invoice has been raised. Also, it’s a good practice to closely examine the paper invoices to check if there is any sign of correction fluid, if any invoice looks like a photocopied version or if any of them looks like it has been printed on a computer. Check for such anomalies and investigate further.

2. Cross Check Vendor Address

Cross check the addresses of your vendors. If any of the addresses matches with an employee’s address it could be a bad sign.Also check for addresses that go with more than one vendor as well as the vendor names that are similar to other famous vendors.

3. Examine Checks Carefully

It’s also important to examine the checks carefully. The checks that display amounts just below the authorization levels should be reviewed multiple times. For such check, it’s also good to implement an additional security level or mandate a second signature. Always be suspicious and keep a close watch.

4. Review Unusual Transactions

Keep a watch over the transactions. Unusual transactions such as those occurring at odd hours, involving unusually small or large amounts or taking place in distant cities should be double checked.

5. Cross Check Vendor Phone Numbers

Cross check the phone numbers of your vendors.Look for peculiarities in the records like no phone number for any vendor, multiple vendors against the same phone number, a home phone number or numbers which are always answered by answering machines. Such oddities should be investigated at the earliest.

6. Observe Employee Behaviors

You should also be more observant towards employee behaviors. Unhappy or dissatisfied employees in accounts payable are most likely to commit fraudulent activities. As an employer, you must be vigilant about the needs and motivation levels of your employees. Make sure that you provide good benefits and address their issues well so that the employees don’t get a chance to complain. Also, it’s wise not to assign such jobs to temporary employees.

If a large amount of transactions in your company is processed through accounts payable, it’s extremely important for you to implement effective strategies to detect and prevent accounts payable fraud as soon as possible. However, you can also use software to go through your records quickly and efficiently, which would help you look for any sign of trouble.