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accounts payable fraud

5 ways to prevent accounts payable fraud

January 9, 2024

The percentage of businesses reporting commercial card fraud has increased 10% since 2021. As an accounts payable (AP) 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?

Embrace virtual cards

While checks are a declining form of payment overall, they still represent the greatest number of B2B payment transactions.

In 2022, organizations using virtual cards faced only a 9% susceptibility to fraud, a significant improvement compared to the 63% vulnerability associated with check payments. From the moment check payments are issued, they are at a high risk for fraud because:

  • 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.

Virtual cards offer enhanced security by expiring once the designated dollar amount has been processed, minimizing the risk of ongoing fraudulent transactions.

Implement positive pay

Check fraud hits your bottom line directly. It’s a very manually intensive process to address, given that you have to issue stop payments, re-issue checks, close and reopen accounts, order new checks, etc. If you must continue issuing checks, 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. Any discrepancies prompt your bank to notify you of authorization or decline, adding an extra layer of protection.

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 peers as well to identify possible weaknesses in your fraud prevention policies and procedures.

Define employee duties

Most employees are honest, but you must also take steps to prevent internal fraud. For example, the same employees 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.

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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.

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