Detecting and Preventing Fraud in Accounts Payable
Money missing within a company may be the result of miscalculations, but there’s also the chance it could be fraud from within the company. Though you may never want to suspect an employee of fraud, there are times when you need to know exactly how to detect it and how to prevent it. Here are a few tips to recognizing fraud and preventing it from happening in the future.
Who is Doing it?
First, it’s important to know who the culprits typically are in these situations and how they are able to smuggle money out of the company. According to the Association of Certified Fraud Examiners, most instances of fraud in a business are committed by associates based in the accounting department. This can be largely attributed to their intimate knowledge of the company finances. Other potential culprits can include upper management as they may have an air of authority that employees in lower positions tend not to question.
How do Employees Commit Fraud?
The most common way employees are able to sneak money out without being detected is called an “accounts payable scheme.” This is more complicated than just writing themselves a check from the company or using the company card. Under the guise of a legitimate transaction, fraudsters can transfer money to an unnamed account. The more transactions there are in a company, the easier it is to let one illegitimate transaction slip through the cracks without anyone noticing.
Understand the Security in your Accounting System
This security is built into the system and will prevent accounts payable fraud unless it isn’t used. This lapse in security might occur due to an improper delegation of duties or just general lack of awareness or know-how on the part of management. Educate yourself about the security system and ensure that it is always used effectively.
Internal Control Policies
If you establish a system within the company that outlines certain rules, regulations, and expectations, employees will be much more likely to strictly adhere to them. Enforce these policies when they are broken and the chances of it happening again become slimmer. Random inspections throughout the year may also help to remind employees of the importance of adhering to these regulations. Verify that every purchase and transaction is received and accounted for, and that products aren’t misappropriated by employees.
Proper Delegation of Duties
Things can get lost in the shuffle when you don’t know who is in charge of what. Become intimately aware of each accounts payable employee’s job description; even rewrite it to include proper delegation of duties. That way everyone is clear on what their role is and can be held accountable if they are found doing something that is not in their job description.
Data Mining Tool
There are third-party data mining tools that can be used to analyze your accounts payable transactions on a regular basis. Rather than painstakingly going through the data and numbers yourself, the tool will filter through the data and determine what is going to the right place, at the right time, in the right amount, and what is not. For example, fraudsters often do their dirty work off the clock on a weekend, evening, or even on a holiday – when no one is looking. Data mining tools can easily make note of this and catch any culprits.
Internal Control Review
Before you submit an email, you reread it to be sure there are no typos or misspellings. The same applies to accounts payable transactions, but even more so because you are dealing with the company’s money. With an internal control expert on staff, you can get an annual review of your accounts payable function and make mistakes a thing of the past.
Businesses both big and small should have preventative measures in place to properly deal with instances of fraud and to prevent it from happening. The cost and lengths it takes to protect your business are a fraction of the cost you might be forced to pay in the event of fraud. By taking preventative measures, your company will be able to stay safe from fraudsters and earn the money that it, your employees, and you, deserve. Your business will continue to grow and eventually set the standard for fraud prevention.