How AP Automation can help stop defrauding within businesses

- Daniel Ball, SVP Innovation at Medius

Businesses are being defrauded in five main ways, yet the role AP Automation plays in stomping this out, is a game-changer.

The global workforce consists of 3.3 billion people, almost half of which have access to, or control over a portion of their employers’ financial assets. Though occupational fraud is no new fad, the confusing and distracting climate in the last two years has directly exacerbated this problem. In 2020, Report to the Nations conducted a global study on occupational fraud and abuse, investigating 2,504 cases from 125 countries. The study found that the average fraudulent act is committed by employees and goes undetected for 14 months, costing businesses over £6,000 a month and 5% of their annual income.

Fraud is clearly extortionate, common and global, costing companies over £2 billion in total, and it’s getting worse. Given that the Association of Certified Fraud Examiners (ACFE) expects fraud – particularly payment and invoice fraud - to increase over the next 12 months, here are five ways your business is being defrauded and the role AP automation plays in reducing them.

 

1. Pay attention to the small print to reduce, or prevent vendor fraud

The ACFE found that millions are embezzled via vendor fraud, yet most businesses are oblivious to it. Relegating attention to the small print in fast-pace and large-scale organisations is exactly what fraudsters desire, in order to funnel company money into their personal accounts. To combat this, companies must vet their vendors. This process should start during the vendor enrollment stage, where verifying mailing addresses, contact numbers, vendor tax identification numbers, points of contact, and bank accounts must be a priority, before onboarding a vendor as part of your organisation.

Once you’ve secured your vendors, continue to prioritise the finer details. Build ongoing data analysis via AP automation into your business models. The payment paradigms matter. Compare your vendor payment pattern with company benchmarks and investigate any unexplained anomalies in vendor profiles and activities. AP automation facilitates this process and can help identify unauthorised payments to unrecognisable accounts, transactions at odd hours of the day, and faraway transactions to unfamiliar countries.

 

2. Monitor for inconsistencies in the payment details

Fraudsters are adept at slipping in illicit transactions among legitimate ones, which makes invoice fraud detection that much more challenging. But, knowing where to look is half the problem. A typical fraudster holds a position of authority and has been employed by the company for at least five years. Payments that have been rounded up are duplicate transactions. Additionally, very small or very large payment requests are all warning flags to watch out for.

 

However, detecting this is difficult with manual AP processing and lends into more loopholes for fraudulent behaviour. With automation, business systems can be customised to keep track of verified transactions. Companies can use this tool to clearly define who controls the purse strings and who authorises payments. This makes transactions more transparent, accessible, and verifiable, which will make it easier for businesses to trace illicit behaviours.

 

3. Go paperless to eliminate cheque fraud

Identity fraud plays significantly into stealing cheques in transit. According to Home Office research, identity fraud costs the UK economy over £1.2 billion annually. Whilst most fraudulent activity is conducted online, the more traditional fraudsters among us still attempt physically stealing cheques, using false identification as part of their act. Other methods of cheque fraud include using counterfeit, non-bank issued cheques and forgery.

 

Businesses have access to digitised transactions and going paperless will eliminate physical cheque theft. You need to work to prevent paper steals, but using automated AP to enable a highly securitised payments process which prevents fraudsters from manually changing any aspect of invoice data.

 

4. AP Automation is a gamechanger against invoice fraud

The lack of compliance when processing invoices facilitates fraud. Fraudsters tend to notify companies that supplier payment details have changed and redirect payment details into their personal account. Invoice fraudsters also tend to intercept email exchanges, or compromise an email account, and are more likely to successfully do so if invoice handling is decentralised.

 

Fraudsters fundamentally rely on decentralised business systems, where if invoices are paid by multiple staff members, or/and from multiple office locations, this increases the likelihood of successful fraudulent activity. Compliance is a key factor in detecting and ending invoice fraud, which in this case is centralising the payment process via AP automation. This enables full and total visibility into every financial transaction in real-time, thus making internal and external illicit behaviours very difficult to succeed.

 

5. Investing in Cloud AP Automation will mitigate successful fraud attacks

Maintaining security within businesses is more important than ever in this new normal of remote working. Since the start of the pandemic, IT Technicians working around the clock to accommodate a comfortable hybrid working experience for their colleagues, have taken their focus away from securing work systems. This provides the very opportunity fraudsters need to infiltrate networks and exploit private data.

 

As a result, data, website, and email security are more vulnerable to fraudulent acts. In 2021, the B2B Payments Survey Report found that 49% of their 340 respondents reported serious fraudulent breaches made against them. 15% of the respondents stated these breaches impacted them financially. Cloud AP Automation is an effective solution to this and provides a visible and secure environment which users can utilise from any location, at any time. Cloud also provides a timely and frequent communication channel, through which users can flag irregular transactions as soon as they see them - which can directly hamper fraudulent attempts.

 

As the payments process becomes increasingly digitised within and between businesses, so will occupational fraudulent activity. Limited time, resources and hybrid working mean that businesses cannot oversee every internal and external activity within the payments process, which inevitably leads to leaving loopholes for fraud to fall through. However, AP automation creates a system of centrality, transparency, and visibility, in which frequent and real-time communication, irregular paradigms and attention to detail all work together to reduce the risk of defrauding businesses.