Think about all the money that flows out of a business. Payments go to vendors, suppliers, utilities, and rent. And every dollar that a company spends goes through Accounts Payable (AP). For this reason, AP is vulnerable to fraud from inside and outside of the business.
What is accounts payable fraud?
AP fraud involves a wide range of activities. Check tampering cons, billing schemes, and expense reimbursement scams are all examples of AP fraud. The Association of Certified Fraud Examiners (ACFE) provides the following definitions:
Check tampering scheme
A fraudulent disbursement scheme in which a person steals his or her employer’s funds by intercepting, forging, or altering a check or electronic payment drawn on one of the organization’s bank accounts.
A fraudulent disbursement scheme in which a person causes his or her employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases.
Expense reimbursement scheme
A fraudulent disbursement scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses.
It’s not always easy to see the signs of AP fraud unless you know where to look. Good accountants have developed effective ways to spot accounts payable fraud. Great accountants can also reduce the chances of it happening. Here are a few ways to detect accounts payable fraud in any business:
- Consider the human element.
- Verify your vendors.
- Test transactions.
- Monitor financial ratios.
- Review write-offs.
The Profile of the Typical Fraud Perpetrator
A recent report by KPMG, identified the most common traits of a “fraudster.” A typical fraudster possesses the following qualities:
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