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7 Signs Of Tampering With The Accounts Payable

Key Takeaways:

  • Fraudulent activity in the accounts payable (AP) department is not uncommon.
  • Tampering with the accounts payable can have devastating consequences for a business.
  • Common signs of fraud include duplicate entries, missing invoices, and entries with incorrect amounts.
  • Businesses can prevent and detect fraud by implementing controls such as requiring pre-approval for all changes to the AP process, performing regular audits of the AP process, and establishing clear communication channels between the departments.

Businesses rely on accurate and up-to-date financial information to make sound decisions. When this information is tampered with, it can lead to disastrous consequences. In this blog post, the experts at 7 Figures Funding will discuss some signs of tampering with the accounts payable. We will also talk about how fraud and money mismanagement can make it difficult for a business to return credit and how you can guard against these activities.

What Is Account Payable Fraud?

Account payable fraud is a white-collar crime involving manipulating a company’s financial records. This may be done for various reasons, including personal gain or to cover up other fraudulent activities. Employees, vendors, the two parties working together, or, increasingly, a third party who is trying to access the company’s accounts payable systems may commit accounts payable fraud.

Any business may be a victim of severe fraud. According to ACFE, also known as The Association of Certified Fraud Examiners, a typical organization loses 5% of its income to fraud every year, with a median loss of $125,000. An average of 14 months pass before the fraud is discovered, costing $8,300 each month on average.

Signs of Tampering with the Accounts Payable:

Many signs can indicate fraud or tampering with the accounts payable. The most common include:

Sign 01: Duplicate Payments

A fraudster can attempt to execute a vendor’s monthly payment twice a month to transfer the money to their account. It’s fairly simple to argue that this is a mistake. On the other hand, dishonest suppliers may attempt to submit identical invoices to receive a payment twice if they are aware of gaps in payment procedures.

Multiple payments can also go undetected when invoice payment is made using a regular purchase order (PO) system and a “one-off” vendor expenditure system. This may occur if an employee forgets or never seeks a PO for the charge.

Sign 01: Duplicate Payments

Sign 02: Tampering with Invoices

Fraudsters will often attempt to modify an existing vendor invoice or create a new one that includes false charges. This type of fraud is commonly seen in companies with little internal control over their accounts payable (AP) processes. Tampering with invoices can be as simple as changing the dollar amount or the vendor’s name on an invoice.

Fraudsters will create fake invoices from fictitious vendors or alter legitimate invoices and submit them for payment. This type of fraud is more difficult to detect because it requires a higher level of sophistication and planning.

Sign 03: Creating False Credits

Another way that fraudsters attempt to tamper with accounts payable is by creating false credits. This can be done by submitting fraudulent refund requests or duplicate payment requests to the AP department. False credits can also be created by altering legitimate credit memos or creating fake credit memos.

Sign 04: Tampering with Check Run Processes

Tampering with check run processes is another way people attempt to commit AP fraud. This can be done by altering the check run schedule or changing the order in which checks are processed. Tampering with check run processes can also involve intercepting checks mailed to vendors and redirecting them to a different address.

Sign 05: Phantom Vendors

Tampering with the AP department can also involve creating phantom vendors. These are fake vendors created to funnel money out of the company. Phantom vendors can be created by employees or outside parties with access to the company’s accounting system.

Sign 06: ‘Flip Flop’ Vendor Master File Changes

Another sign of tampering in the AP department is when there are frequent changes to the vendor master file. For instance, a staff member may get unauthorized access to a vendor master record and enter their bank account details. As a result, the employee’s account receives a payout. After receiving payment, the employee opens the vendor master file to undo the transaction.

Sign 07: Sequential Numbers

Fraudsters occasionally make very foolish errors. As an illustration, consider an employee who creates a phony vendor account and submits bills for fictitious items and services without considering how invoice numbers advance in the real world. For example, all the vendor’s invoices start with “1000” followed by other sequential numbers. But in reality, a new vendor’s first invoice number would be something like “2000123.”

Tips for Preventing Account Payable Fraud:

It is vital to avoid fraud in the first place since most businesses cannot recover their losses from fraud.

To avoid fraud with accounts payable:

  • Be proactive by doing routine audits, monitoring KPIs, looking for warning signs, and checking bank statements.
  • Create a tip line and other avenues for employees to report fraud and implement rules for safeguarding them when they do.
  • Verify the backgrounds of every employee.
  • Apply a formal code of ethics. This code must be simple to understand and compatible with the business and industry culture. Policies outlining potential conflicts of interest ought to be included.
  • Establish explicit guidelines for expense reimbursement. Enforce them at the top tier of the organization.
  • Make sure that only authorized personnel have access to the accounts payable system.
  • Define positions and divide responsibilities. Divide check-signing and bookkeeping authority at the most fundamental level. Don’t let the same individual balance the bank accounts, sign the checks, and cut the checks.
  • Inform staff members about phishing scam dangers and how to spot them.
  • Implement procedures to ensure that any changes to current invoices, bank deposit information, and contact information are appropriately verified.
  • To maintain all vendor data up to date, review and update the vendor master file often.
  • Automate the AP procedure to guarantee safety.

Ending Note:

Tampering with the accounts payable can have serious consequences for your business. You can protect your business and maintain a healthy bottom line by taking measures to prevent and detect this type of fraud.

The 7 Figures Funding App in Charlotte enables you to quickly manage all of your personal and company financial accounts, including your bank accounts, loans, credit cards, and more. Additionally, it helps you make the best finest financial decisions to support the expansion of your firm. You may acquire a free pre-approval at any time by just connecting with the app, which won’t affect your credit.

Get started today and stay safe from fraud!