How Much Do You Need to Worry About AP Fraud? 5 Key Factors To Consider

  • How Much Do You Need to Worry About AP Fraud? 5 Key Factors To Consider

    How Much Do You Need to Worry About AP Fraud? 5 Key Factors To Consider

    Fraud isn’t something we like to think about. We’ll put controls in place to prevent it, of course, but unless fraud actually causes a major problem for our companies we’d rather let other people worry about it. But if you’re responsible for your company’s accounts payable department, fraud is something you’re going to need a plan for.

    You’ve probably heard this all before. But even though you know it’s a real problem, maybe there’s a part of you that suspects it’s not really that big a deal. After all, you already have anti-fraud controls in place. How much more do you really need to worry about accounts payable fraud?


    Accounting Fraud Is Fairly Common

    According to the AFP Payments Fraud and Control Survey, 62% of companies were targets of payments fraud in 2014. They also note that it seems more fraudsters are shifting their attacks to the accounts payable department. This supposition is supported by the 2016 Report To The Nations On Occupational Fraud And Abuse, which found that asset misappropriation fraud accounts for 83% of all reported fraud. That category includes frauds that target the AP department, such as billing and check tampering schemes.

    There Are Large Amounts Of Money Involved

    Median loss for asset misappropriation fraud is relatively low at $125,000 per fraud (compared to a median of $975,000 for financial statement fraud). But that number can add up quickly. Survey participants represented in the Report To The Nations estimated most companies lose about 5% of their total revenue each year to fraud.

    Fraud Isn’t Always What You Expect

    Some of us have a mental picture of a fraudster as someone outside the company working alone. But KPMG’s 2016 Global Profiles of the Fraudster report found that most fraud actually happens internally. 65% of fraudsters were employed by their victims and another 21% were former employees. Also, it’s almost twice as likely for fraudsters to work in groups as it is for them to work alone. It’s important to get an accurate picture of what fraud looks like so you can fight it more effectively.

    Anti-Fraud Controls Aren’t Enough

    Most fraudsters that are caught aren’t stopped by internal controls. In 2016, tips were by far the most common detection method. They accounted for 39.1% of fraudsters who were caught. The next most common detection methods were internal audits (16.5%) and management review (13.4%). Anti-fraud controls help prevent fraud, but they’re not all that effective at catching fraud that’s going on right now.

    Technology Can Help

    The more effective your anti-fraud controls, the better you’ll be at discouraging fraud from happening. And if you’re using an automated accounts payable system like the one NextProcess offers, then it’ll be easier for managers and auditors to review information and catch discrepancies. Because most fraud is caught because of tips, you’ll also want to set up a hotline so it’s easy for people to report suspicious activity. You don’t have to spend all your time obsessing about how to prevent fraud, but you should have plan in place and review it regularly so fraud doesn’t become a big problem for your AP department.