Accounts Payable fraud in the Digital Age poses a multi-faceted problem for all businesses. Any irregularities in a manual Accounts Payable process or on-premise system workflow can allow a preying fraudster’s scheme to seamlessly enter the company’s workflow. Digital transformation is constantly evolving the way companies can detect fraud and streamline processes thus changing the role of the CFO from solely managing risks, clarifying and facilitating decision-making, to gathering in-depth knowledge of the organization through financial data analysis to helping safeguard and nurture a business through new and significant perils by applying and transferring the new skills he or she is learning about preventing and detecting Accounts Payable fraud.
Accounts Payable Fraud Detection should be a priority for businesses’ Purchase-to-Payment process
Companies worldwide have lost more than $7 billion due to fraud and although technology is increasing the effectiveness of how Accounts Payable fraud detection is done, human factor is still the main source of vulnerability in terms of exposure to fraud for many organizations around the world. In fact, an employee is somehow involved in most confirmed cases of fraud for businesses of all sizes.
Sadly, in the U.S., fraudsters who have longer tenure with their company (five years or more) stole twice as much! An average of $200,000 compared to employees with tenure of less than five year.
And 68% of the fraud committed by individuals outside the company is actually the act of people close to the company in some manner, notably partners such as sales agents, clients, service providers, and others. Interestingly enough, only 19% of the cases of corporate fraud are perpetrated by the company’s senior management, but the median loss is much, much higher at $850,000. The effect on companies who aren’t implementing a reliable form of Accounts Payable fraud detection will reveal themselves in a number of ways such as:
Financial: Financial impact is not only felt when cash is directly impacted, such as invoices paid or wire transfer made to a fraudulent recipient, but also in terms of operating income, such as bad receivables resulting in loss of cash flow and lower net profit with every transaction that's a product of fraud.
Data Theft: One of the greatest riches of a commercial company are its client data files as well as the nature of its business agreements and partnerships. This threat can take two forms:
- Inaccessibility to data, which would block the company’s commercial, operational, and industrial activities.
- Malicious use of corporate data, which could incur significant legal liability for the business, serious damage to its reputation, and potential financial consequences for its customers.
HR and Psychological Impact: A breach affects employees psychologically when they feel betrayed by a work colleague that they have known for a long time, as well as the fraudster’s managers, who may wonder whether they truly carried out company procedures to the fullest extent.
Reputation: Falling victim to fraud from a lack of skill in Accounts Payable fraud detection impacts the company’s reputation, from the company’s main commercial partners, namely its clients and suppliers, to its shareholders. How the company manages the crisis also impacts its reputation, so a solid communication strategy should be in place and practiced frequently.
3 Types of Easy-to-Miss Fraud in the P2P Workflow
There are a variety of fraudulent activity that can enter the Accounts Payable workflow, but we’re going to focus on the three types of fraud we see the most in the invoice and payment processing workflow. Those are duplicate invoices, phantom vendors, and missing checks, but luckily, Yooz can detect and resolve all these fraud attempts. Here is a short overview defining these fraud activities and how Yooz detects them:
- Duplicate invoices can interrupt the accuracy of a company’s financial statement causing them to lose thousands of dollars without even noticing until, possibly, the end of the year. Our Accounts Payable automation solution is equipped to automatically detect inconsistent data and duplicates that may enter the system.
- Phantom vendors occur when an employee creates fictitious vendor information with a fake invoice and sends it through the Accounts Payable workflow for processing. Yooz’s machine learning technology learns pattern and information that it applies to future actions in your P2P workflow. This way Yooz’s Accounts Payable automation software will be able to detect unfamiliar invoices and documents and will redirect them for further review.
- Missing checks are often hard to track because of the lack of visibility throughout the P2P process. YoozProtect provides a regulation-proof audit trail along with our “google” like search feature, empower businesses to be able to track what part of the invoice processing workflow the payment was in when it went missing plus recover it by typing in key information that would be on that payment.
Easily Detect Accounts Payable Fraud in Real-Time with Yooz
The most advanced technologies in this battle are big data, machine learning and digitization. Big data enables handling vast volumes of information, often in real-time. Machine learning is a component of artificial intelligence in its broader meaning, seeking to create and use algorithms to obtain predictive analysis based on data. Together, they make it possible for the company to go even further, such as risk scoring its clients and suppliers.
Digitization, or automation, technologies that leverage artificial intelligence are the other essential tool and an important part of any effort to mitigate risks. By creating and organizing a rigorous process that includes complete traceability and security found in Cloud technology, these solutions become extremely effective in fighting fraud.
Yooz leverages all those advanced technologies to automatically validate and detect fraudulent invoices and documents in the purchase-to-payment process. So even if a fake invoice comes through in an e-mail—whether it’s from a real or fake account—our system’s validation steps will notice and redirect it for further review before it’s too late.
Here is how the Yooz system works:
- As soon as you scan the invoice into the system it moves securely through the workflow and is stored securely in the Cloud. The original invoice can then be shredded.
- Documents stored in the Cloud can only be accessed by those with login credentials, whether it be to view or approve. Users are also able to see the record of the document, who has accessed it, who has approved, and where it is in the workflow.
- Department managers can control access permissions according to the dollar amount and/or sensitivity of the documents, so only those approved will virtually “touch” the document.
- Once the document is in the automated system, it goes all the way through the process electronically, including being exported to the secure ERP.*
Yooz’s advanced technologies made this secure workflow reality because we created our software to protect each Yooz client application whether it has one or multiple Accounts Payable e-mail(s), comparable to a global e-mail where vendors send their invoices to be paid. These e-mails have a unique login assigned by the Accounts Payable department or finance administrators. So first the pirates would have to get access to this unique Accounts Payable email, which unlike the regular emails of the employees, is really complicated to obtain if you are not an employee of the company.
So, if a fake invoice imports into the Yooz Accounts Payable automation software, it will enter in the workflow and go through multiple approval steps, including matching it to a real purchase order (P.O.). If there is no P.O., our Accounts Payable fraud detection algorithms will be triggered and will alert you. The scam usually stops there. As a result, when you leverage Yooz’s state-of-the-art invoice processing and payment automation solution this scenario rarely occurs but if by some chance it does, rest assured that there’s a strong chance that an approver will catch it before the fraudulent invoice is paid.
Leveraging our Accounts Payable automation software to identify fraud will be your biggest ally to keep money in your bank and give you peace of mind that your invoice processing and payment workflow is secure with the most advanced technologies. However, as you can see, it's still important to make sure employees are not only equipped with Accounts Payable fraud knowledge, but also implementing the skills they have learned with every transaction.