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Detecting and investigating these types of fraud requires a systematic approach to identify irregularities, gather evidence, and take appropriate action against the perpetrators.
Accounts payable fraud is a type of deception that targets a company’s accounts payable department, which is responsible for paying suppliers and other vendors.
Similarly, payroll fraud is the act of manipulating the payroll system to steal funds and can occur within any organisation. In recent times – even close to home in Australia – there has been a rise in accounts payable and payroll fraud which has proven to be detrimental to businesses.
One of the most common ways for employees or employers to commit payroll fraud is through the falsification of hours or wages. This is when an employee or an employer alters the payroll system to manipulate the amount of compensation owed. Commonly, payroll fraud in this manner is committed by employees through inflating the number of hours worked or secretly increasing their compensation rate.
Invoice fraud involves the manipulation or editing of invoices to deceive a company into making payments to a fraudulent account.
A ghost supplier / employee is someone who does not genuinely provide goods and services for the company, or someone who is not genuinely employed by the company. The aim of ghost suppliers / employees is to funnel funds under the disguise of a supplier / employee with the funds ultimately being collected by the perpetrator. This fraud is typically committed by a dishonest employee who has the authority to create and alter payroll / supplier records.
Reimbursement fraud is a type of fraud where an employee makes a false or inflated claim for reimbursement of business expenses. For example, an employee might submit a fake receipt for a meal, inflate the amount of a taxi fare, or claim personal travel as a business expense.
Employees and contractors are treated differently particularly from a taxation perspective. This type of fraud occurs when an employer misclassifies a worker as an independent contractor instead of an employee to avoid having to pay the relevant entitlements and taxes typically due to a worker classified as an employee.
There are key signs to be aware of when it comes to accounts payable and payroll fraud. Some of the triggers include duplicate payments, split purchase orders and phantom suppliers / employees. It’s important to understand the warning signs so you can identify accounts payable and payroll fraud quickly in your business.
Keep an eye out for irregularities and unusual spikes or inconsistencies in payment patterns, which might indicate fraudulent activities. An example of this could be altered bank account details.
Cross-verify vendor / employee details and bank account information to identify any discrepancies, especially if there are sudden changes or updates without valid reasons from the vendor / employee.
Implement software solutions to detect duplicate invoices, ensuring no payments are made for the same goods or services more than once.
Monitor and restrict access to sensitive financial information. Changes made by staff members without a valid purpose or unauthorised access could by signs of fraud.
Data analytics can be effective in identifying anomalies in payroll and supplier records. For example, data analytics can help to identify any duplicate bank account numbers, employee / supplier names, addresses or phone numbers which can be integral in identifying the existence of ghost suppliers / employees.
Knowing how to prevent accounts payable and payroll fraud is important for the safety and reputation of your business. Without being able to identify when it happens can create significant loses and damage to your company.
Implement strong internal controls, including protocols for vendor verification and job segregation processes. These measures create hurdles for fraudsters, making it harder for them to manipulate the payment process. By way of example, separation of duties can be achieved by having one employee responsible for approving timesheets, another responsible for processing payroll and a third responsible for issuing the paychecks.
Conduct routine audits of accounts payable and payroll processes and reconcile financial records to detect any discrepancies promptly. Being able to identify the problem quickly can prevent fraud from escalating.
Prior to making any payment, carefully check both new and supplier and payment details. Conduct ABR searches on the ABN listed on invoices. If you are not sure if bank details are correct, contact the supplier to confirm.
Verify the background of staff members who undertake or have the authority to make or approve payments. This can help identify potential red flags before granting them access to crucial financial information.
Whistleblowers are employees who report illegal or unethical activities within their organisation. Educating your employees about business ethics, incentivising and protecting employees who may come forward with concerns, is an effective measure to detect and deter fraudulent activities.
By implementing these controls, organisations can reduce the risk of accounts payable and payroll fraud, protecting themselves from financial loss. If you’re unsure about your accounts payable and payroll processes and want to ensure you’re not vulnerable to fraudulent activity, please don't hesitate to get in touch with us.
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