4 Steps: Avoiding the misery of unmitigated fraud

  • 11 Apr 2022
  • Thought leadership
4 Steps: Avoiding the misery of unmitigated fraud Image

If you’re at all close to the Accounts Payable process, you know that fraud and risk are always top of mind. It’s a visceral angst – particularly if you don’t have any formal, automated prevention process in place – that you might be missing signs that somewhere in your AP process, your company’s cash is being leached out by fraudsters day after day.

That angst is not unfounded, and you’re not alone – fraud is a very real threat to businesses across all sectors. According to Gartner®, “In 2020, 74% of organizations were targets of payment scams, many of which were focused on the accounts payable process.”1 So if fraud is this rampant, what can the average organization do to prevent it? Keep reading to discover the four most important steps you should be taking today to avoid the heartbreak and messiness of unmitigated fraud.

Step 1: Validate important vendor data

Setting up and maintaining supplier data is important from an operational functionality viewpoint, but when it comes to fraud, it’s a crucial part of your fraud strategy. If you’re handling this manually, you could have hundreds or even thousands of incomplete, inaccurate, and rapidly decaying supplier records along with massive gaps in your organization’s armor against fraud and risk.

Technology, like supplier portals or supplier management solutions, helps you quickly overcome the challenge of holding supplier data in multiple offline locations that can sometimes grow out of control and out of date. Gartner says “Vendors of these solutions may then use a variety of methods to validate the submitted information — including checking the data against external databases (or enabling finance teams to do so) and validating bank account details.”1 By using an automated fraud prevention tool, you can cross-check and then query financial information sent by the supplier. If needed, suppliers can even be put ‘on hold’ so that new purchases and payments are stopped, should certain risk flags be triggered.

Step 2: Establish a system of checks and regulations

Visibility is the foundation of every great fraud prevention strategy. And how do you gain visibility? By following a documented, systematic series of steps that looks at the complete procure-to-pay process. Enforce strict approval processes, such as four-eyes approval requirements, separate approvals for invoice and payments, or ‘no purchase order, no payment’ policies.

This also includes conducting regular audits of your invoice process to keep up maintain accountability. Technology is your best friend in this task, as things like Artificial Intelligence (AI) can be an ever-watchful eye looking for unexpected changes or errors that open you up to potential fraud activity.  In the Gartner report “Quick Answer: How Do You Reduce Fraud in the Accounts Payable Process?” they state: “These validations address not only vendor originating anomalies or attempted fraud by bad actors, but also internal errors or actions, such as valid purchase orders that accidentally included incorrect pricing.”1

Step 3: Use anomaly detection technology

Systematically, having anomaly detection is critical. Fraud and risk can happen throughout the invoice process, but some points are more vulnerable than others. At capture, fraud and risk can be introduced with things like fake invoices and fake vendors. In the routing process, you might see manipulation of data or a lack of tracking. During the coding and approval process, you can have wrong codes or inaccurate approvers, or at the final step, the payment process, you could have examples such as duplicate payments.

You need an intelligent system that can understand things like tracking, authorized emails, and IP addresses. Prevention, AI, insights, and alerts, will help you understand where you have the opportunity to prevent, and in many cases, shut down risk and fraud. Roles and permissions, make sure that you have a platform that is robust enough to have segregation of duties and granular permissions to really control this process. Things like two-factor authentication to ensure that your users are the only users allowed to log in. 

Step 4: Leverage end-to-end invoice through payment automation

CFOs often think it’s going to be enough just to implement an ERP and it will miraculously solve everything. When relying solely on an ERP, adding a separate stand-alone capture solution, and adding a separate supplier portal, it all adds up to many systems that are not communicating with each other. As a result, invoices and data are lost in the shuffle. In addition, partial automation is not scalable, creating room for costly errors. Truthfully, an ERP simply isn’t designed to meet the needs of a complex payables process and the seeds of success or failure are sown right at the start when selecting a spend management system.

You need to look at a complete AP solution that will work seamlessly with all the other aspects of your business. This type of solution ensures high data quality and enables high automation levels for the ultimate level of efficiency in the AP department. What do you get as a result? Real-time access to the most accurate data available with no interruptions or lags, an all-powerful view over the entire process for complete visibility and a scalable, secure system monitoring every invoice from receipt through to payment.

Creating a watertight, protected accounts payable process doesn’t have to be an arduous process. With the right tools in place and by taking an approach based on best practices employed by organizations around the world, you can breathe easier and focus on establishing a streamlined, effective AP process. Download Gartner full report “Quick Answer: How Do You Reduce Fraud in the Accounts Payable Process?” here to learn more.

 

1Gartner, Quick Answer: How Do You Reduce Fraud in the Accounts Payable Process?, By Akif Khan, Micky Keck, Jonathan Care, 6 December 2021.

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

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