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Strengthening Internal Controls with Automation: Reducing Fraud + Compliance Risk
There are many benefits to implementing business process automation (BPA) within your company, particularly in financial departments. One of those major benefits is that BPA provides tools to easily strengthen internal controls. This helps reduce fraud and human error. It also improves compliance with internal policies.
Unchecked fraud can be extremely costly for a company. Accounts payable and travel and expense (T&E) departments are two of the most common targets for fraudsters. Strengthening controls in those departments makes it harder for people to commit fraud. And if fraud does happen, other BPA tools make catching the fraud easier.
Strengthening internal controls also helps reduce human error. There is no criminal intent behind such errors, but they can still be very costly for a company both in terms of finances and in the cost of work hours to locate and correct errors. Building compliance into the financial processing systems helps reduce the risk of mistakes and can even eliminate certain types of errors.
The Serious Consequences of Fraud and Errors
Fraud and errors can both result in significant losses for companies. The Association of Certified Fraud Examiners (ACFE) estimates that organizations worldwide lose 5% of their annual revenue to fraud. Just here in the United States, that translates to over $1.3 trillion in losses every year. Companies can’t afford to ignore the costly impact of fraud.
Errors can also result in costly mistakes. Even simple spreadsheet errors have cost companies millions of dollars in certain cases. For example, a copy-and-paste error in an Excel spreadsheet resulted in TransAlta purchasing contracts at a higher price than necessary, costing the company $24 million.
Fraud and errors come from very different places, but strengthening internal controls with BPA software can help companies reduce both. The more steps you can take to prevent fraud and errors or catch them quickly, the better you’ll be able to protect the bottom line.
Examine The Company’s Internal Controls
Internal controls are policies and procedures that protect your company. In relation to fraud and errors, these controls are intended for prevention and detection. You need both types of controls, but ideally, you want to prevent fraud and errors before they become a problem that your finance teams will need to fix.
Before implementing BPA software, examine your company’s current internal controls. You want to make sure that you’re not carrying over any policies that are outdated or don’t work. BPA software, like the modules from NextProcess, is highly customizable, so you’ll be able to choose which internal controls to build into the software. The more planning you do before implementation, the more smoothly things will go.
Work with all the stakeholders involved to define your goals for automation. It is helpful to get employees from across the finance teams to provide feedback, particularly when you are identifying pain points in current processes. The people actively using your current systems day after day know what’s not working, and they may even have ideas for how to fix the problem. Ask questions such as, What’s working or not working right now? Which policies and procedures do people tend to ignore or forget? What processes take up too much time? Where do you catch errors most often?
How BPA Software Strengthens Internal Controls
BPA software automates many financial processes that were once manual. This includes certain internal controls. The software automatically cross-references and double-checks processes for errors and anomalies. Automated data capture and indexing tools dramatically reduce the risk of errors. By pairing optical character recognition (OCR) with NextProcess’s proprietary indexing technology, we guarantee 99.5% data capture accuracy.
Implementing BPA software reduces fraud and human error by eliminating unchecked manual processes. Automated workflows also enforce segregation of duties, which guarantees no single person has complete control over a business process by themselves. Segregation of duties and job rotations help prevent internal fraud and errors by regularly getting a fresh set of eyes on each process. BPA software also makes it easy to implement approval hierarchies, and it sends automated approval reminders.
BPA software also makes it much easier to implement controls that still require a human touch. System-generated audit trails make compliance reporting faster and more reliable. The system won’t perform audits for you, but it makes it easy to cross-reference, double-check, and access data. In addition to capturing data, BPA software indexes information about every transaction. You’ll be able to run searches and reports by PO and invoice numbers, vendor name, date range, invoice total, payment status, item descriptions, and much more. Easy access to accurate data streamlines audits, management reviews, and document examination. This makes it more likely that someone in your company will catch mistakes and fraud before they become a huge problem.
Dynamic, Customizable BPA Software
Clear, enforceable policies and internal controls are essential for preventing and catching fraud and ensuring policy compliance. Flexible software solutions from NextProcess let you customize the software to your company’s needs, making it easy to automatically enforce company policies and regulations. You’ll be able to program all BPA software modules from NextProcess with custom policies, tolerances, and permissions to automatically enforce specific policies and procedures.
For example, in accounts payable, you can customize the software to auto-process invoices that match POs and fall below a certain cost threshold, but require approval for other invoices. In purchasing, you can set up a punch-out catalog and item catalog that simplify purchasing for employees while also ensuring they only make purchases that comply with company policies. With T&E management software, you can set the software to automatically recognize approved expenses.
This customization is not static. You can update the software as part of a dynamic fraud and error prevention policy, adapting internal controls in response to new risks or new industry standards. And with NextProcess, your company can implement BPA software that seamlessly works together and integrates with your existing ERP system for an end-to-end financial processing solution. Contact us today to learn more and schedule a free demo to see how NextProcess can help your company strengthen internal controls.
