Question
How to Spot the Accounts Payable Fraud and Prevention. Under the ACFE's Fraud Tree, accounts payable fraud falls under asset misappropriation. These are the most
How to Spot the Accounts Payable Fraud and Prevention.
Under the ACFE's Fraud Tree, accounts payable fraud falls under "asset misappropriation." These are the most common forms of occupational fraud. Accounts payable fraud involves fraudulent disbursements, the most common of which are billing schemes, check tampering and expense reimbursement schemes. An employee could run a billing scheme by creating a shell company and then submitting false invoices. This can be easier to perpetrate if the invoices are for things that aren't physical goods, like consulting services. In a check tampering scheme, an employee steals and forges checks from their employer and then keeps the money for themselves. Suppliers can commit fraud by intentionally overbilling or double billing for services and then collecting these additional funds. Fraud can also occur as the result of a bad actor looking to gain access to a company's bank accounts through a phishing scheme, in which they often mimic key vendors and send fake invoices that, when opened, give them access to the business's system. Five Red Flags for AP Fraud The overwhelming majority of organizations find out about fraud from whistleblowers, according to an ACFE study. Internal audits and management reviews rank second and third as the most common sources of detection. But ACFE notes proactive surveillance, establishing IT controls and account reconciliation can cut the time fraud goes unnoticed in half. Some places the ACFE recommends looking for red flags include: Invoices. Invoices that list the same address as an employee's, only have a P.O. Box number listed or have even-numbered totals are red flags. Also look for key details missing on the invoices, such as a tax ID number or purchase order (PO) number. Vendor master file. Monitor the vendor master file for a large number of inactive or duplicate suppliers. Watch for the same suppliers getting contracts or a new supplier getting a large, unexpected contract. Keep an eye out for invoices that don't match the address in the vendor master file. Checks. Missing checks and signatures that don't look right are possible signs of check fraud. External complaints. Complaints from suppliers about late payments or non-payments when your records suggest you've already paid them could signal an issue. Employee behavior. At least one behavioral red flag was present in 85% of the fraud cases studied. Common red flags included employees living beyond their means and having financial difficulties, unusually close associations with vendors or customers and unwillingness to share duties. Six Common Types of AP Fraud accounting ap fraud infographic Billing schemes. Billing schemes were the most common type of fraud perpetrated by the accounting department in ACFE's 2020 study. Billing schemes can take on a few different forms, including: Setting up a shell company for which the employee can generate false invoices and cut checks. Fraudulent invoices for services companies are most common because there is no physical inventory to account for. Pass-through schemes, in which an employee who approves invoices and authorizes payments sets up a shell company that orders things the company legitimately gets from another supplier. These items are then marked up and sold to the business through the shell company, and the employee keeps the profit. Generating invoices from inactive suppliers in the vendor master file and writing checks to vendors the company no longer does business with. Check fraud. In the AFP's 2020 Payments Fraud and Control Survey, check payment schemes were the most frequent type of fraud. Employees committing check fraud forge or steal physical checks and deposit them into an account they control. Often, they then change the code in the accounting system to hide it. ACH fraud. As more organizations shift to ACH payments, this is an area to keep a close eye on. Bad actors increasingly target ACH in cyberattacks, in which they gain access to the system through a compromised business email account. Often, these bad actors will send an invoice that looks like it's from a supplier, but once someone clicks the link or opens the file, the attacker gains access to the system and can steal valuable information. ACH fraud can also occur when an employee opens a personal credit card with their employer's account information. Expense reports/reimbursement fraud. The most common examples of this type of fraud include falsifying receipts, duplicate expensing by employees who dined and traveled together for the same meals, submitting non-qualifying transportation and entertainment expenses, claiming the maximum expense amount that doesn't require a receipt or overstating mileage. Kickback schemes. In a kickback scheme, employees and their suppliers work together to earn money on the side. For instance, the supplier inflates an invoice, the AP clerk cuts the check, and they split the additional money. Conflict of interest. Kickback schemes are often borne of conflicts of interest, which could materialize if someone in the organization is related to the supplier or receiving significant gifts from the supplier. Conflicts of interest can become a problem when someone uses their professional or official role for personal or corporate gain.
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