Accounts Payable Risk
and Fraud Prevention
Date: 19 – 22 May 2020
Venue:HB Connect Conference Center
Johannesburg South Africa
Register Now! Limited Seats Available!
R 15,999.00 per Delegate
Payment fraud is expanding on all fronts. It’s both internal and external and without the proper controls in place, organizations can be hit using a variety of approaches. In this session, we look at the types of fraud and then offer recommendations on best practices to minimize check fraud, p-card fraud, T&E fraud and electronic payment fraud. Because electronic payment fraud is relatively new and the number of ways it can be committed is so varied, we spend quite a bit of time on that topic.
Learn how to empower your accounts payable department to prevent overpayments and minimize fraud risk while enriching the work experience of your team. This workshop will focus on:
- Identifying risks associated with all key activities of the accounts payable function
- Learning the advantages of effective compliance training for the accounts payable team
- Exploring accounts payable controls needed to enhance control environment and mitigate opportunities for fraud
- Motivating critical personnel to enhance your control environment
- Implement effective AP fraud detection techniques and build audit practices to detect red flags of AP fraud.
- Implement best-practice Anti-Fraud Control strategies for AP.
- Advise management on fraud risk mitigation through transaction monitoring, technology/information technology tools and low-cost internal controls.
- Recommend better anti-fraud management structure (Board of Directors/Executive Management, Line Management, Compliance, General Counsel, etc.)
- Internal and external audit professionals
- Accountant Payables
- Accounting and audit practitioners
- AP managers
- Senior financial management seeking to reduce their vulnerability to costly frauds
- Procurement and payables specialists
- Compliance and ethics managers
- CFO’s/senior financial managers
- Security personnel
- Statistical overview of the fraud problem
- Who commits fraud
- Why employees commit fraud (The Fraud Triangle)
- Lessons from fraudsters
Common Types of AP Fraud Today
- Vendor/billing fraud schemes
- Check fraud and tampering
- ACH fraud
- Fraudulent AP financial reporting
- Conflicts of interest
- P-Card fraud
Red Flags of AP Fraud
- Conducting a Fraud Risk Assessment and Recognizing the Red Flags of Internal Fraud
- The Fraud Risk Mitigation Cycle
- Implementing an organization-wide system for detecting, preventing and investigating fraud
- How Frauds Are Most Often Detected
- Additional General Detection Methods
- Data Mining/Analytics for fraud detection
- Examples of Fraud Audit Techniques at Work
Anti-Fraud Control for AP
- Internal Controls and Other Fraud Prevention Measures:
- Who Should Manage Anti Fraud Activities for AP
- Internal Controls: Do’s and Don’ts
- General controls: Segregation of Duties, Delegation of Authority, Background Investigation
- Specific AP Operations-Level Controls.
Accounts Payable Fraud: Keys to Detection and Prevention
Fraud: The Big Picture According to major accounting firms, professional fraud examiners and law enforcement:
The Two Main Types of AP Fraud
- External Fraud: Perpetrated by outsiders such as vendors, customers, and computer hackers
- Internal Fraud: Perpetrated by insiders at all levels who work for the organization- Employee Level and Management Level
External AP Fraud Category
- Billing schemes/double billing
- Delivery of substandard goods at full price
- Externally created shell companies/phony vendors
- Social engineering/pretexting schemes
- Subcontractor scams
- Kickback schemes via collusion with insiders
- Theft of confidential AP data
External AP Fraud Category 2:
- ACH fraud / Account hijacking
- Check counterfeiting
- Theft/interception and forgery of company checks
Internal A/P Fraud
- Employee Invoicing/Billing Schemes. How it works:
- Accounting/purchasing employee creates bogus invoices from phony company. Forges approval and has invoice submitted for payment. And then Cheque go to phony company P.O. box that fraudster controls.
- Vendor Master File Fraud How it works:
- Absence of controls over access to VMF allows dishonest employees to add sham suppliers. Failure to “clean” VMF at last once a year. Allows phony suppliers to be added, or inactive ones used to commit billing fraud. Fraudulent alteration of existing supplier data in VMF—such as payment instructions….
- Invoicing Fraud: Kickback Schemes How it works:
- Accounting, A/P and/or purchasing employee colludes with dishonest supplier: Allows supplier to… Submit inflated invoices, Bill full price for low-quality goods Secure orders without competitive bidding.
- Varieties, Check-Forging Schemes, Check Theft/ Interception & Forged Endorsement, Check altering: Payee, amount and address. Concealed check Schemes and Counterfeiting
Fraud Detection and Prevention
Red Flags of Billing –
- Invoices have consecutive numbers despite being weeks or months apart
- Supplier address matches employee address
- Invoices missing key details
- Absent or invalid Employer ID number (or use of another company’s number)
- Supplier address does not match address in VMF ü Unusual pricing (high or low)
- Invoice documentation (PO’s, shipping documents, etc.) appear unprofessionally prepared ü Even-numbered pricing
Red Flags of VMF Fraud
- Large number of inactive suppliers. (Could indicate employees added bogus suppliers but no longer
- Too many employees have access to VMF. Many organizations trust employees to be honest in making entries or changes to the VMF. If this group expands, one or more of the “authorized” employees is stealing.
Red Flags of Kickbacks
- Same supplier awarded contracts on consecutive projects
- Product or service prices jump unexpectedly
- Long-time supplier suddenly replaced by new one
- Unusually large orders of specific goods or services
Red Flags of Check Fraud
- Blank checks are missing.
- Cancelled checks show signs of erasure or other alteration.
- Signatures missing or appear forged.
- Supplier or other payees complain about not receiving payments (checks have been stolen and altered).
- Cancelled checks have fraudulent endorsements or dual endorsements. ü Cancelled checks have signs of forged endorsement
Red Flag Detection Methods Basic Red Flag Detection/Analytic Measures & Methods
- Surprise audits
- Hotlines – to gather red flags and potential evidence (50% of detected fraud is by employee tip—highest in the world)
- Surveillance (in the mailroom, other key locations
- Regular internal audits (including tests for specific red flags)
- Manual review/comparison of payroll records against payees
- Physical inventory counts
- Robust vendor validation
- Basic accounting/audit techniques (ratio analysis, sampling)
- Most effective: Using automation to detect anomalies in financial records
Specific AP Red Flag Detection Methods
- Match employee and vendor addresses
- Match employee initials to vendor names
- Identify all post office box addresses
- Review vendor files for missing data
- Validate all new vendors—assess legitimacy
- 3-way match (or 4-way)
- Conduct vendor audits
- Audit for discrepancies between cancelled checks, invoices, and disbursements records
Preventing A/P Fraud
- Segregation of Duties – different AP employees should handle the following duties: Supplier approval, purchase requisitions purchase approval, receiving, and payment.
- Delegation of Authority. Enforce limits on dollar- amounts of AP transactions allowed for specific managers.
Specific Internal Anti-AP Fraud Controls
- Require approval of all purchase requests over a specified amount
- Avoid having people who are authorized to approve purchases also make changes to the approved vendor list (SoD)
- Require competitive bids for all purchases over a certain amount ü Prohibit purchasing employees from accepting gifts valued at more than the organization’s policy limit from vendors ü Enforce monitoring for duplicate invoices
Specific Internal Anti-AP Fraud Controls
- Send all shipping documents and signed receipts for goods to AP within one business day
- Three-way matching: PO-Invoice-Receiving docs.
- Conduct a periodic vendor master file clean-up to flag duplicate vendors
- Investigate multiple vendors with the same name but different operating addresses
Specific Internal Anti-AP Fraud Controls
Whilst BMK Training has core courses which we offer on an international basis to both companies and individuals, we also recognise that from time to time, your company may have specific training requirements that cannot be satisfied in a public training environment.
We can bring our Training/workshops directly to your workplace or we will customize training to meet your specific needs ensuring effectiveness in achieving real performance improvement.
If you have 8 or more delegates then, in house training can be of a greater advantage for your organization.
Advantages of in-house training include:
- Cost savings up to 50% of the training expenses with more effective group training.
- Training is confidential, allowing teams to discuss and work on real issues as trainers will usually sign confidentiality agreements.
- In-house training encourages team building and better understanding of one another
- Training is fully-customized for any team, department, or organization