Preventing fraud in Accounts Payable – how technology can help

Fraud within the Accounts Payable department is more common than you might think with an estimated 5% of every company’s annual revenue lost each year due to fraudulent activities.¹

Unfortunately, a loss of revenue is not the only problem. Dealing with incidents of fraud is often distressing and damaging for the whole business and can harm your reputation.

Accounts Payable fraud can take many forms including paying fraudulent invoices, fraudulent expense reimbursements and paying duplicate payments. In the majority of reported cases, a lack of internal controls has been cited as the main challenge to preventing fraud, making it essential to monitor/pay attention to the details such as verifying supplier information, cross-checking with purchase orders and delivery notes, and apply consistent controls across the board. However, this can be difficult, if not impossible to achieve with manual processes.

It’s also important to keep in mind that fraud can be an internal issue as well as an external one. Your employees know your systems and processes, which means that they also know where the weak points are. It may be hard to imagine a loyal employee committing fraud but in 2016, employee fraud cost UK businesses £40m, with more than 800 incidents of fraud reported from inside an organisation. Almost half (47%) of these incidents were uncovered by internal controls and company auditing.²

It is estimated that fraud cost the UK Economy £193 billion in 2018. ³

Modern accounts teams are under pressure to be more productive while cutting costs and often lack the time to complete the necessary checks to ensure that fraudulent payments and activities are discovered and stopped.

The good news is that there are several ways in which the right Accounts Payable software can give the AP team the tools to take back control and prevent fraud within their organisation.

  1. Automated Invoice checking and verification
  2. Automated Expense Management
  3. Removing manual touchpoints
  4. Improving visibility
  5. Easier statement reconciliation
  6. Audit trails and secure storage

Using an automated solution allows the Accounts team to capture all invoices into the system regardless of whether they are paper (via a scanner) or digital (via email). Data is automatically extracted from the invoices (including PO references) and enables the AP clerk to add any missing information or correct any data errors. PDF’s of the invoices are then saved to your in-house system(s) ready to undergo a 3-way matching process.

When an invoice matches the receipted amount from an order, and the invoice is fully accounted for and authorised, it is posted to the in-house finance system without any human intervention. Invoices can be paid promptly, often resulting in supplier discounts. Improving purchase invoice and order checking and verification makes duplications and errors much easier to detect. All of these processes work outside of your financial systems, therefore preventing any incorrect or duplicated invoices from ever reaching the payment runs.

The National Fraud Authority estimates that companies lose over £100M each year due to travel and subsistence fraud in the form of inflated or falsified expense claims.

Using an automated solution and app to manage Expense Claims can make things easier to ensure that employees aren’t submitting fraudulent expense claims. An Expenses solution is set up with pre-defined categories and maximum claim amounts that are determined by your company expense policy. This means that when a claimant submits their claim, they must pick an expense type from a set choice of categories, they can’t add their own. Mileage rates can also be preset to ensure that employees are claiming the correct amount. Maximum limits can be set for specific expense types such as travel or subsistence, with claims that don’t comply being flagged up and referred to a manager or approver for further investigation. Another important feature is the ability to set roles for users, which means that a claimant cannot sign off their own claims. Only managers or approvers have permission to sign off claims for their team.

An automated solution also gives visibility of the whole process by generating an audit trail which shows all steps in the process, who completed them and when. This not only ensures compliance in processing but is extremely useful when undertaking a review or audit. The audit trail shows the expense claim submission and associated digital receipts, approval or rejection by the relevant manager, processing by the accounts team, files exported to other in-house systems such as a Document Management or finance system. This allows your accounts departments to review and check that all expense claims have been approved by the right manager and that your expenses policy is being followed correctly. A clear audit trail forms part of your robust internal controls in the fight against fraud.

The processes described above remove many manual touchpoints including data entry and manual checking of invoice and expense data. Automated solutions integrate with your existing in-house systems and by saving and posting documents and data directly into the right storage location automatically, they also remove duplication of data entry into multiple systems, which in turn reduces the number of errors. Invoices and expense claims that meet pre-defined business rules are automatically approved, so the Accounts team only have to deal with the exceptions, which not only frees up their time but also leaves them with fewer opportunities to tamper with invoice or expense data and payments.

End-to-end transparency of your entire invoice and expense claims processes is key to driving out fraudulent payments and activities. With an automated system, you can see the status of an invoice /expense claim and where it is in the process, which member of your team is working on what, who has or needs to approve it etc. This also helps to provide a clear up-to-date picture of your financial obligations. Managing this manually means visibility is often non-existent and if a supplier or employee wants an update on their payment or reimbursement, it’s almost impossible to give them one quickly and easily.

Before month-end, the accounts team must verify that the total of all outstanding accounts payable amounts match the payables account balance recorded in the general ledger to ensure that everything balances and the books are correct.

Trying to reconcile statements manually extremely inefficient and therefore costly in terms of time and resources. According to a survey by EY, up to 59% of a financial department’s resources are spent on managing transaction-intensive processes. And around 95% of this time is spent checking transactions that already match, instead of dealing with the problem entries that require attention impacting the team’s efficiency.4

When using and integrating the right combination of Accounts Payable software, for example, Data Capture, Automated Invoice Processing and Document Management, the data in the database or finance system is correct (fact!). At the end of the month, all invoices need to be accounted for, and this is where only missing or problem invoices will be flagged up and dealt with. All other invoices have already been processed, saved in the system, paid and accounted for. By having these systems and controls in place, an organisation should never be overcharged.

Integrating an automated solution with a Document Management system (as well as your in house finance system) to securely store a copy of all invoices, delivery notes, POs, expense receipt images etc, will add another layer of protection to your financial activities. A Document Management system has excellent search functions and all related finance documents (orders, invoices, receipts etc) can be stored with full metadata to aid searching and linking – useful for day-to-day work, essential during an audit. This allows you to gain faster access to data and makes it much harder for documents to be lost or misfiled.

A Document Management system also creates an audit trail so that you can see who has performed an action to what document, which is one way you can monitor what your employees are doing. The system will let you create different permissions for different users so that your team can only access the documents that they need to. All of which helps to improve compliance with industry regulations.

Relying on manual processes leaves your business vulnerable to the risk of fraud, loss of revenue and damage to your reputation. With the right controls and technology in place, businesses can be much better at detecting and preventing fraud in addition to a host of other benefits including improved accuracy and efficiency, improved compliance, paying invoices and expense claims faster, improving supplier relationships and securing prompt payment discounts. With incidents of reported fraud on the rise, can you afford not to take this seriously and equip your team with the tools and knowledge they need to protect your finances and give you peace of mind?

Do you have any questions about improving your Accounts Payable processes and preventing fraud using automated Invoice Processing and Expense Management software? Contact Jack Wright on 01285 810606 or email to arrange a demo!

1 Office for national Statistics
3 PwC survey backed by the Association of Certified Fraud Examiners 2018