Fraud can cause your profitable business to lose money. It can also destroy your reputation. Fraud can come from external sources, such as vendors who send your business phony invoices. Your employees can also devise ways to defraud your firm. In either case, small businesses often lack the time and human resources to detect fraud.
We understand the challenges you face while trying to balance efficiency with safety. After all, you might feel as though speed and efficiency can compensate your firm for fraudulent charges. In most cases, it can’t.
Your business needs an AP system that gives your employees instant access to the context of each charge. An intentional initial review can identify attempted fraudulent billing. Similarly, the coordination of your accounts payable team with those who approve purchases and receive shipments can help. However, you can always do more.
Use the following tips to help prevent fraud:
Pay attention to details
You and your team will seldom discover fraud by examining AP summaries. Perpetrators count on your not having enough time or discipline to delve into the details of every transaction.
Give your organization a strong defense against fraud by simplifying procedures and eliminating ambiguity in your AP policies. That way, you can streamline the review of payables and readily give scrutiny to those that don’t conform.
Take a circumspect approach
Accounts payable fraud comes from both internal and external sources. For this reason, we recommend preventative measures that include both your vendors and employees. Start by questioning the validity of every invoice, even if it comes from a trusted supplier.
Long-term employees know how your system works. Therefore, they may feel tempted to abuse your trust. Therefore, you should have a system of checks and balances that includes all your business’ stakeholders.
Never trust one person to handle your entire procurement-to-payment process. Instead, require the involvement of multiple individuals within your AP department. For instance, make sure that the person who creates purchase orders doesn’t also write checks.
The involvement of multiple team members can help to catch innocent mistakes and deliberate attempts to exploit your AP system. Furthermore, you can promote honesty by increasing transparency and accountability.
Examine employee expenses
Reduce the possibility for fraud that involves travel and incidental expenses by requiring proper documentation. We recommend zero-tolerance policies that deny reimbursements for unsubstantiated claims.
You can eliminate most expense-related fraud by demonstrating that your AP department strictly complies with established policies. In other words, you can deter fraudulent behavior by enforcing the rules.
Reduce the chance of fraud in your organization by reducing the number of possible exceptions to sound accounting practices. Never allow managers to override your AP procedures to set the stage for rushed payments.
Insist on having an auditable paper trail that will lead to the sources of discrepancies. Also, create a system of checks and balances by limiting the purview of each employee. You can limit the opportunity for fraud by requiring the involvement of many people.
Consider payment methods
Every type of payment used by your firm has unique vulnerabilities. Knowing this, you should avoid overgeneralizing your AP policies. For example, check-fraud strategies such as positive pay and dual signatures might not work to guard against abuse of the company’s credit card.
We recommend that you develop distinct policies and procedures for every payment method. Additionally, you should consider reducing the number of payment types that your business uses.
Training and education
Never assume that your AP employees know how to detect and prevent fraud. Instead, create an ongoing training program that keeps your team updated with knowledge of the latest threats and countermeasures.
Perpetrators often aim their activities toward your newest, least-experienced employees. Although your training programs should encompass your entire company, you should prioritize low-level staffers for fraud-mitigation training.
Sophisticated software applications powered by AI and machine learning can analyze troves of data for fraud. Such a system can spot irregularities in real-time. Technology can also improve your business’ efficiency by creating and enforcing practical workflows that discourage fraud.
Advanced technologies can grow with your company and provide ongoing protection against new threats as they emerge. Moreover, they increase in intelligence by learning from internal and external data streams.
No single solution exists for the problem of AP fraud. Even as you increase accountability and transparency, perpetrators develop new tools and tactics that defeat detection. To keep your business safe, act on multiple levels.
You should take practical measures to stay informed about the fraudulent tactics that threaten your business. Therefore, you must pay attention to related news headlines in industry publications. Having an experienced partner on your side can also enhance your safety.
Can you manage a comprehensive strategy to protect against AP fraud? We can help you develop safe practices that combine technology, training, and other countermeasures. We can implement tactics that discourage fraud and identify those that attempt it.