Fraud Prevention in the Accounts Payable Process

The following statement is taken from the 2008 ACFE Report to the Nation…”According to research conducted by the Association of Certified Fraud Examiners (ACFE), U.S. organizations lose an estimated 7 percent of annual revenues to fraud. Based on the projected U.S. Gross Domestic Product for 2008, this percentage indicates a staggering estimate of losses around $994 billion among organizations, despite increased emphasis on anti-fraud controls and recent legislation to combat fraud.”

The study states that approximately 23% of the fraud cases they reviewed were related to invoices with a medium loss of $100,000 per case. Billing (invoice) was the most common type of fraud.

It is interesting that in their findings; the most common way of detecting fraud was receiving a “tip” (46%) where as internal control only accounted for 23%.

One could conclude that as economic times become more difficult, fraud might increase. Even it this were not true the current trend in fraud, cries out for increases in internal controls, especially related to invoicing. It is not enough to assume the Accounts Payable Analyst just know that it is ok to pay an invoice. Automated business rules must provide the continual detection mechanism and automated workflow must ensure the proper personnel are involved in resolution. For invoices without a purchase order with internal control ensures that the proper personnel are involved in approval and their spend limits are automatically verified. Removal of human touch points removes both the temptation for fraud as well as removing the unknowing participation such as approval of an invoice without having the benefit of the invoice image to review.

One would only need to ask the prior employees of corporations driven to bankruptcy through fraud if it is better to have process control that prevents fraud as compared to having someone finally tipping off the authorities after the fraud has occurred.

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