Avoid late payment penalties. Capture early payment discounts. Reduce days payable outstanding. Minimize the cost of invoice processing. These are among the most hyped and oft-touted benefits of accounts payable (AP) automation. And while these are certainly key components of the concept, they often overshadow the ability to address another concern with businesses, one in which accounts payable is particularly vulnerable.
We’re talking about fraud. The ever-present “I can’t believe it happened to my business” threat. So while you may think that you’re immune, the statistics surrounding internal fraud may surprise you.
- A lack of internal controls makes up 29.3% of fraud cases, making it the leading area of organizational weakness
- According to the Association of Certified Fraud Examiners (ACFE), the median amount of time required to detect billing, expense reimbursement, and check tampering fraud is a whopping 24 months
- Check fraud comprised 77% of payment fraud in 2014
- The accounting department is the largest function engaging in fraud, accounting for 16.6% of all internal fraud cases
While you may have no reason for concern, it’s always a good idea to remain diligent in your operations and keep a keen eye on your payables. And while there’s no way to eliminate the risk of fraud entirely, tools like AP automation platforms provide functions and data designed to minimize that risk as much as possible.
For those still on the fence about moving payables to the cloud, enhanced fraud prevention may be the additional justification needed to make the leap. If you’ve already made the shift, you may just find some new ways to use your automation tools to your advantage.
So how can AP Automation help? This article explores three buckets of functionality that can keep your business safe.
Among the many benefits of a digital ecosystem is the amount of data at your fingertips at any given moment. What used to be an exercise in paper, filing cabinets, sticky notes, and the capacity of your own memory, has become a function of cloud computing. Today, the simple click of a button can provide a detailed and time-stamped view of the entire lifecycle of an invoice or vendor record.
Did an employee make multiple changes to vendor record details within a short amount of time? Was bank account data for a given vendor modified? Was an employee not typically associated with a given vendor unusually active with its invoices?
If suspicion arises, data points such as GL, approved amount, contact information, or banking details can be viewed in such a way that you know exactly who executed a given action and precisely when.
While it won’t always imply wrongdoing or need for suspicion, you’ll no doubt be able to recognize activities that deviate from the norm and are worth a second look. More than likely, it was a legitimate modification, a breakdown in communication, or an honest mistake. To quote Christine Warner in a fantastic article entitled 10 Ways to Identify Accounts Payable Fraud, “trust but verify.”
The ubiquity of data is one of the double-edged swords of the digital age, particularly business applications. On the one hand, you can drill down to find out almost anything about your business if you try hard enough. On the other hand, you can you can drill down to find out almost anything about your business if you try hard enough.
So how can a busy business owner or accounting manager keep tabs on the pulse of their payables quickly and easily? While fraudsters are naturally resourceful and crafty, some telltale signs that may raise an eyebrow or pique your interest in a deeper dive:
- Invoices are missing vital details such as description, quantity, etc.
- Vendor info contains PO boxes or public emails (Yahoo!, Google, etc.)
- Dramatic change to typical vendor pricing
- Approved amounts just underneath approval limits
- Rounded invoice amounts ($25.00, $50.00, etc.)
- Increases in invoice volume for a given vendor
- After-hours logins and modifications to invoice and vendor records
While audit trails can’t necessarily prevent fraudulent activity, they can provide an enormous amount of data should you need it in defense of your business or to put a stop to fraudulent activity in progress.
You wouldn’t allow just anyone to walk into your office and thumb through your physical invoices. You may even limit the access some people within the accounting department have to certain documentation.
With a cloud solution, you can take the concept of access even further, not just managing team members access to data, but also limiting their functional permissions. By assigning specific roles to your team, you are able to ensure that certain capabilities are restricted to those you choose, thereby preventing anyone else from even having access to perform specific tasks.
Maybe you’d like to have specific employees approve bills, with others having read-only access. Perhaps you want only certain staff to be able to edit payee records, or you’d like to limit the ability for users to reject invoices or edit details.
With the standard features of accounts payable platforms, access is controlled digitally, ensuring that members of your team have access tailored to their roles within your team, even down to a very granular level.
By doing this, you can systematically segregate duties to ensure compliance and accuracy throughout the payables cycle. After all, the hallmark of a well-run payables process is the consistent use of checks and balances. By separating roles for data, approvals, and payments, you reduce the chances for funds to be re-routed or otherwise misappropriated.
Among the more common role-based segregations are:
- Preventing approvers from modifying invoice data
- Disallowing approvers from paying invoices
- Limiting access for vendor record editing
- Restricting the ability to assign user permissions
An efficient workflow is only as good as your ability to enforce it consistently. Paper-based workflows are notorious for ad hoc approvals and scrambling to make it in time for the bi-weekly check run. Along the way, discrepancies can easily slip through the cracks, as can fraudulent payment details. Within the madness of a busy accounting department, reviewing each and every invoice in detail is sometimes just not possible.
With an automated solution, business rules are enforced automatically and regularly.
Whether it be multiple required approvers, enforced pre-approval review processes, or payee bank account validation, automated business rules prevent the ability to bypass steps required by your business.
This also removes discrepancies and noncompliance with internal routing and processing policies – it is enforced digitally and can be modified as needed by assigned company administrators only.
Some of the more common uses of systems and workflows offered by AP automation platforms include:
- Multi-step approvals and individual approval limits
- Exception handling workflow
- Automatic invoice routing
- Digital PO matching
All businesses are different, so when choosing an AP automation provider, it pays to look closely at the capabilities of their business rule engine, and compare that to not just existing needs, but also projected needs for the foreseeable future.
The Final Word
Fraud is very real and very costly, but shouldn’t consume your thoughts or get in the way of advancing your business. With due diligence, regular evaluation of your processes and a keen eye for things that seem out of place, you can minimize these risks substantially.
And while it’s not always the most publicized benefit of AP automation, it’s a great byproduct of moving your payables to the cloud.
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