Five controls to decrease the risk of accounts payable fraud in your company
Your accounts payable department is particularly susceptible to fraud. This is because you make all your company's payments from this division.
And if you don't manage your accounts payable well, it could pose serious financial risks to your cash flow and impact your business negatively.
But you don't have to fall victim to fraud. Read on as I explain five top controls you can use to tighten up your accounts payable.
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Discover how to:
Eliminate fraud in your company;
Improve your cash flow and eliminate simple accounting mistakes;
Analyse your financial statements and identify errors; and
Be 100% up-to-date on new and updated accounting and reporting standards.
These five controls will help you reduce the risk of fraudulent payments in your accounts payable
1. Supplier welcome letter
Send a welcome letter to all new suppliers explaining the full set of information you require to
load them on your payment system, and explain your payment procedures. This way, you'll be
sure to send payments to your suppliers' nominated bank account, and not a fictitious account
with his name on it!
2. Always use a purchase order
Make sure everyone in your company starts their purchase process with a purchase order. Not
only will there be a paper trail, but every person must have the purchase order signed off by
their manager. This prevents the risk of fictitious orders.
Read on for three more tips you can use to prevent fraud in your accounts payable department.
3. Invoice matching and approval
Make sure your accounts payable department matches every invoice to the purchase order and
goods received note. This prevents the risk of invoices issued without any actual orders. Once
matched, the head of the user department should authorise the payment of invoices. This
control is useful to make sure invoices are checked and signed off before you pay them.
4. Separation of duties
Make sure you separate duties and have different people responsible for the approval of the
invoice, data capturing, payment preparation and payment approval. This means you won't
have the same person conducting all these duties. Fraud is rampant where one person can
create and authorise payments unchecked. But with several people in the chain, you can easily
spot fraud and genuine mistakes due to human error.
5. Keep an eye out f or suspicious data patterns
Any of these examples are likely causes for concern:
If you see these patterns, go back through your paper trail and check the reasons for such
Excessive purchases of unneeded items;
Lots of shipments to PO boxes;
A huge amount of weekend or holiday delivery dates; and
Consistent preferential payments to a specific supplier.
P.S. The Practical Accountancy Loose Leaf Service has just been updated with ten main risk areas with your accounts payable you need to be aware of. Click here to get your copy and all the controls you can use to reduce your risk.