Payment Fraud is going down but...

Recent statistics from the AFP (Association for Financial Professionals) indicates that vendor fraud, on the whole, is down in the United States in recent years, but that notwithstanding, nearly 61% of US based businesses have either been victims of vendor fraud or had vendor fraud attempted upon them.  Other data from the AFP suggests that nearly $60 Billion dollars a year goes down the corporate tubes by way of payment and vendor fraud schemes.  With that said, it’s obvious that any responsible Chief Financial Officers, Controllers, Treasurers, and Accounting Officers are interested in deploying solutions that help identify and isolate fraud instances to safeguard their organizations.  The fact is that many tools that are being leveraged among other pursuits like Accounts Payable automation or P2P initiatives include some level of duplicate payment detection and other precautions.

Payment Fraud Comes In A Variety of Shapes And Sizes

There are several ways that fraudsters perpetrate their crimes upon unsuspecting organizations. 

Occupational  - In the most egregious way, this is typically done when an internal member of the organization betrays his/her organization and commits some form of payment related scheme.  In a recent high profile business, case, the former chief merchandising officer at Aeropostale was recently convicted of just such a crime, directing as much as $300 Million dollars of spend to a company that was owned by a friend.  In the process, he padded his wallet with an additional $25 million  dollars by way of forcing Aeropostale to overpay for materials costs and not allowing fair competition for materials sourcing.

High-technology – In more brazen corporate hacking scenarios, fraudsters attempt to perpetrate fraud against organizations by direct hacks or malware attacks.  Either way, cybersecurity has become a paramount issue in the highly network and digital economy we have today, ensuring that critical payment related information does not get falsified or exposed.

Invoice Fraud – And much more central to this particular post, invoice fraud can occur intentionally when a false vendor submits an invoice for payment.  Duplicate payments, perhaps originated by redundant invoice submission, and in most cases, accidentally, are also a cause for wasted spend, though these are typically unintentional.

How do Accounts Payable automation technologies help curb these?

There are a few primary ways that Accounts Payable automation solutions can help protect you from exposure to payment fraud schemes and they are:

1.  Reduction of Errant Payments – When converting invoices into raw data, especially using an OCR process, one of the fundamental underpinnings is that the field data native to the invoice becomes malleable.  This data is indexed into the varying fields necessary to drive the invoice transaction forward, and as such, can be used or cross referenced using triggers to identify potential payment threats.  For example, one of the first areas that will be referenced when using an Accounts Payable automation solution is a reverse lookup to Vendor Master file info.  Weeding out fake or new vendors is key, and alerting the appropriate staff to changes in Vendor data on an invoice can also indicate legitimate changes or potentially fraudulent ones, especially involving Remit To addresses.

2.  Reduction of Duplicate Payments – By leveraging invoice data utilizing multiple data fields as triggers you can have your Accounts Payable automation solution quickly cross reference invoice numbers by vendor, within date ranges, and amounts.  Using these three lookups as well as PO data, you can often catch duplicate payments before they are made and dollars are squandered.

3.  Identifying Invoices Within 1-5% of An Approvers Max Threshold – If invoice fraud is occurring, it generally involves someone on the inside of the organization and an outside collaborator.  That said, in these situations most of the perpetrators know the extent to which they can fleece a company out of money without setting alarm bells of and as such, will run up their false invoices to within a high percentage of the approval threshold that the internal fraudster can authorize.  By running the invoices in an Approval workflow against a business intelligence and dashboarding/reporting exercise, you can identify who has a disproportionately high number of invoices flowing out to particular vendors, and investigate internally.

The key take-away is that Accounts Payable automation technology is by no means a cure all for vendor payment fraud issues, but can be used as a tool to mitigate many instances of fraud and serve to provide better controls adherence and visibility to key Financial Managers and Officers for organizations, thereby making them safer than they were in the past.

There’s been some recent coverage of the sustained rise of the Business Process Outsourcing market globally along with the impacts that the sustained growth has had upon second and third world countries where BPO services are provided.  According to industry data, global spending on BPO services is forecasted to exceed $25 Billion dollars in 2013.  The obvious reasons for this growth include the favorable cost benefits of BPO services in addition to a renewed ability for organizations to divest themselves of non-core responsibilities and instead concentrate their efforts upon focal areas.

With that said, there are additional ways by which everyone wins when you blend proven Accounts Payable automation strategies with BPO operations.

Here they are:

1. Decrease risks of Fraud – By centralizing your process and utilizing technology to perform validation and reconciliation processes automatically, you can reduce the chances of malevolent activity within your Finance ranks.  We discuss this at length here, but anytime you have a variety of seemingly innocuous transactions that fit a certain profile occurring, it could be indicative of fraud elements within your organization.  By relying upon a third party engagement to assist you in process transformation, you decrease the risk of internal collusion and people operating in their own self interests.

2. Promote Global Economic Development – For many countries, especially those classified as second and third world, the opportunity for BPO service providers abound due to a confluence of factors: favorable labor rates, low overhead, and increasingly reliable technology infrastructures.  This is no secret, and as we’ve seen in the past 20 years, many major global enterprises have flocked to traditionally strong BPO bastions like India.  However, because of the success of pioneering BPO centers in areas like Bangalore, Mumbai, and Hyderabad, there a slew of other countries throwing their hats in the ring to compete in these areas.  Other notable nations include the Philippines (which as of 2010 surpassed India in terms of dollar volume for BPO engagements), China, Singapore,  Ethiopia, South Africa, and many others.  Responsible BPO providers recognize the impact that their companies can have on local economies from a cash flow perspective, but also from a personal development perspective, literally providing  empowerment and training to those who otherwise may not be able to obtain instruction as readily as those in the first and second world countries.

3. Focus on Innovation – One of the remarkable things about world class companies like 3M is their remarkable ability to innovate in products and services development across a broad representation of industries.  This is absolutely trace-able back to their specific and focused re-investment of time in research and development.    To quote Mike Shultz of Digital Spark Marketing, “Long before Google gave its engineers one day a week to pursue their own ideas, 3M let its researchers do the same with up to 15% of their time.”  If more organizations had more time from their best resources to invest in strategic functions, the result would be real innovation within their process.  Granted that improving the Accounts Payable process is not likely to produce a top-line revenue generating product or service, but it will create a leaner and meaner invoice processing back office, which in turn will contribute to profitable operations and pleasant customer service.

While we think adopting a cloud-based Document Process Outsourcing approach is the trend that more businesses will adopt in the next ten years, it’s not for everyone.  One of the issues that many business leaders take exception with a BPO/DPO approach is the risk it opens its organization up to from a network security and privacy standpoint.  However, there are many methods for securing corporate data and this is generally not a show-stopper for most businesses.

To learn more about Accounts Payable best practices, and why cloud based Accounts Payable software is making AP Automation a reality for companies of all sizes, check out our eBook below!