Protecting organizations against Accounts Payable Risks
By: Misri Parikh
Tags: Fraud, Invoice, Accounts Payable, Risk Management, Financial Services

Fraud is on the rise, with 74% of organizations being targets of a Payments Fraud Attack in 2020.

A well-functioning AP department is an invaluable asset to the organization it supports. With AP’s support, vendor relationships go more smoothly, vendor payments are issued on time and sent to the right place, cash flows efficiently, and fewer mistakes lead to less loss. Of course, all of that is easier said than done.

3 Biggest Accounts Payable Risks for AP Managers

1. Missed Invoice due dates

One of the never-ending risks that accounts payable departments face is organizing and maintaining a sound payables process. Late payments on invoices due to missed dates can make a big difference in the company’s cash flow, affecting the budget and even daily operations. Due dates are a big part of the Accounts Payable process of getting invoices paid on time.

Penalty late fees are also added to the invoice after the due date to encourage the payment to be made quickly. The late fee will then be added to the total of the original invoice, so the company will be required to pay the former total and the late fee on top.

2. Identifying Mal-Practices

Fraud Suppliers & Invoices(External Party)

Duplicate payments: This has been identified as one of the top payment pain points for companies. Suppliers can be paid more than once due to receiving the same invoice in different formats or because of employee error.

Unapproved Suppliers: This happens when a payment is made to a fictitious or unauthorized supplier for non-existing or fraudulent goods and services.

Raising Concern over Fraudulent Invoices (Internal Party)

False billing: This occurs when false invoices are created for self-payments. In this type of fraud, we generally see an employee working independently or colluding with an external party.

Fraudulent payments: An employee can make unauthorized payments, usually via check or automated clearing house (ACH). Businesses should regularly audit rapid or unusual changes in financial reports.

Tampering with financial reporting: Takes place when an employee makes unapproved changes to financial data after payments have been processed.

3. Invoice Payment Visibility

Invoice visibility continues to be a common pain point due to widespread manual account payable processes. Manually-driven invoice processes lead to errors, rework, late fees, and missed savings that eat up the AP team’s day while negatively impacting the bottom line. This lack of visibility into invoice payment status can cause problems across the organization, such as:

Increasing AP resources needed to respond to supplier queries

Impairing ability to forecast

Issues in identifying liabilities and closing the books

Best Practices to Mitigate Accounts Payable Risks

Organizations can take the following steps to improve their Accounts Payable risk management and avoid fraud:

Use artificial intelligence (AI) or machine learning (ML)-powered automation software to monitor spend. Advanced software can identify any duplicate invoices, extra charges, or suspicious activity and complete regular spend analysis.

Verify vendors: AP and finance professionals should only add vendors to the system that are approved and verified. Accounts Payable management software can ensure there is no repeated contact information, suspicious addresses, etc.

Move Accounts Payable to a digital environment: With electronically based AP processes, payables operations aren’t at the mercy of paper, its inefficiencies, and security concerns.

Automate approval process: With an automated routing process, organizations can track every movement of an invoice and any user’s activity regarding it, including when invoices are submitted, approval thresholds for payment amounts. CFOs have tighter control of who approves invoices and when payments are made to manage risk and financial loss to the company at a broader level.

Use advanced reporting functionality to improve processes continuously: AP managers and finance executives should regularly evaluate and analyze data surrounding invoice activity and make incremental improvements that address any problems or inefficiencies.

Constantly review transactions, randomly audit, and create electronic audit trails. Organizations should adopt an AP management solution to automatically create a searchable audit trail of all invoices and payments.

Conclusion

With globalization and technology transforming markets, supply chains, and business operations, AP departments should think proactively about risk and fraud management and more strategically overall. Adding transparency and tighter control throughout the financial process will strengthen organizations against risk and loss and prepare them for an increasingly diverse digital business world.

Aavenir’s Invoiceflow Solution is looking to improve the management of accounts payable risk and fraud prevention through the steps listed above.