According to the Association of Certified Fraud Examiners, the typical organization loses 5% of its revenue each year to fraud.1 And that’s just the fraud occurrences that are detected and reported.
As an Accounts Payable professional, you work in an area that is increasingly at risk for fraud, because that’s where your organization funnels its money to pay outside vendors. So what can you do to prevent AP fraud from occurring before it even happens?
- Stop issuing check payments. While checks are a declining form of payment overall, they still represent the greatest number of B2B payment transactions. According to the Association for Financial Professionals, 82% of organizations report that checks were the primary target for fraud attacks at their companies.2 From the moment they’re issued, check payments are at a high risk for fraud for these primary reasons:
- Dishonest employees may issue checks without proper authorization.
- Fraudsters can easily alter checks or create counterfeit checks.
- Checks contain bank routing and account numbers in plain sight for fraudsters to use.
Check fraud hits your bottom line directly, and it’s a very manual-intensive process to address, given that you have to issue stop payments, reissue checks, close and reopen accounts, order new checks, etc.
- Implement positive pay. If you must continue issuing some checks, the best way to prevent check fraud is to implement a positive pay program in conjunction with your bank. With positive pay, you forward a check issue file to your bank for each check run. Before your bank honors a check, it matches the check against your check issue file. If the check is not on your check issue file, or if the check information (payment amount, check number, etc.) does not match the check issue file, then the bank notifies you and allows you to either authorize or decline the check payment.
- Verify vendor data. Periodically review vendor contact information for accuracy in your vendor master file. Some red flags for possible fraudulent activity include:
- A “public” email address (such as Gmail, Yahoo, etc.) for the vendor.
- A residential address instead of a commercial address.
- A vendor address that matches one of your employee’s addresses.
- Two or more vendors with the same contact information.
If a vendor contacts you by phone to change their information, such as address or bank account number, make sure you also verify any changes with the vendor in writing to guarantee the authenticity of the change.
- Conduct surprise audits. Periodically review your AP department’s policies and procedures, paying close attention to fraud detection and prevention effectiveness. Consult with your AP staff and peers as well to identify possible weaknesses in your fraud prevention policies and procedures.
- Segregate employee duties. Most employees are honest, but you must also take steps to prevent internal fraud. For example, the same employee(s) shouldn’t be responsible for issuing payments and reconciling accounts. In addition, make sure you separate the vendor setup process from the vendor payment process.
Also, be sure to check out this infographic on the five ways to prevent AP fraud.
At WEX, we’re here to help you simplify your payments. If you’re interested in talking with us about additional ways to prevent AP fraud in your organization, please contact us.
1 2014 Report to the Nations on Occupational Fraud and Abuse, Association of Certified Fraud Examiners Inc.
2 2014 AFP Payments Fraud and Control Survey, Association of Financial Professionals Inc.