Fraud and Other Shenanigans in
Accounts Payable
Mary Schaeffer
Publisher & Editorial Director AP Now
Author Fraud in Accounts Payable: How to
Prevent It + 15 other business books
25 Ways Crooks Steal Your Organization’s Money and
How You Can Stop Them
Agenda
Introduction
Invoice Fraud
Check Fraud
e-Fraud
P-card Fraud
T&E Fraud
Closing Thoughts
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 2
Introduction
The honest mistake issue
It happens at every organization
Fraud comes in two flavors
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 3
The Good, Bad & Ugly
The Good news: You can deter
The Bad news: Not a one-time fix
The Ugly news: Fraudsters smart and sophisticated
Deter, prevent, detect
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 4
Invoice Fraud
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Mary S. Schaeffer 5
#1 Phony Invoices
Yellow pages ads, copier toner, help-wanted
A word about billing notices
Items that skirt the law Look like invoices (really)
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Mary S. Schaeffer 6
#2 Inflated Prices
Vendors knowingly charge higher prices than agreed to
Difficult to prove
Solution: 1) Complete Pos 2) Line item matching – automation a big
help here Identify vendors
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Mary S. Schaeffer 7
#3 Unauthorized Charges
Vendor charges for freight etc. that was supposed to be included Difficult to prove
Solution:
1) Complete Pos 2) Line item matching – automation a big
help here Identify vendors
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Mary S. Schaeffer 8
#4 Duplicate Invoices
Invoices submitted a second time with the intent of getting the customer to pay twice
Solution Invoice number control
Check for duplicate payment amounts
Rely on approver
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Mary S. Schaeffer 9
#5 Suppress Credits
Vendor statements with credits suppressed
Solution:
1) Use best practices so credits not created
2) Request statements and follow up on a timely basis
3) Hire an audit firm
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Mary S. Schaeffer 10
#6 Checks Intended for Others How:
1) The Master Vendor File Scam
2) The Return to Requisitioner Scam
3) Honest mistake
Solutions
1) Good controls on MVF
2) Reports on changes
3) Don’t return checks to requistioners
4) The form for returned checks © 2012 Accounts Payable Now & Tomorrow and
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#7 The Credit Hold Scam
The threat of putting the organization on credit hold unless
an invoice is paid NOW
Solution:
1) Don’t over react
2) Double check before blindly issuing the payment
3) If payment is made, close the PO and extinguish the
receiving docs
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 12
Check Fraud
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Mary S. Schaeffer 13
#8 Phony Checks: Your Bank Info
Physical
Electronic; Internet orders
Solution
Positive pay for physical checks
Daily reconciliations of bank accounts
Separate account for refund checks
ACH blocks, filters
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#9 Same Check; multiple copies
Mostly a payroll problem
Solution:
Positive pay
Better Solution:
Payee name positive pay
Best Solution:
No checks – all on direct deposit
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 15
#10 Stolen Checks: Payee
Name Changed
Example of how crooks are getting smarter
Solution:
Payee name positive pay
Direct deposit
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Mary S. Schaeffer 16
Electronic Fraud
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#11: Positive Pay Rejects
Resubmitted as ACH debits
Solution:
1) ACH blocks, filters
2) Daily bank reconciliations
3) of course, positive pay
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Mary S. Schaeffer 18
#12: Unauthorized ACH
Transactions
Can be debit or credit
Several variations
Solutions
ACH blocks, filters
Daily bank recs
Separate computer for online banking
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#13: Corporate Account Takeovers
How they work
Solutions Separate computer
Careful with attachments
Careful clicking on links
Careful even with legitimate looking emails
Better updating of contact info
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#14: Ridiculous e-mails
The ones that scream scam
Solutions
Obviously, don’t respond
DO NOT CLICK ON ANY LINK IN THEM – just to see
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#15: Serious Looking Emails
Examples
Includes NACHA, FBI, Feds etc.
Your ACH payment has been returned
Looks like it came from your bank
Solutions
Keep contact info updated – and verify separately
Don’t click on anything!
Separate computer
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#16: Change of Bank Account Request
Variation on the change of Remit-To address request
Solutions
Verify separately
Get contact info when setting up master vendor file
Keep contact info updated
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P-card Fraud
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#17: Unauthorized Spend
Could be for personal use
Could be for items not authorized
Solutions:
Guidelines - detailed
Cardholder agreement
Manager review
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#18: Charges just under the Limit
Trying to get around authorization limits
Trying to get around other restrictions
Solution
Detailed policy
Run reports identifying such charges
Talk with purchaser and/or sup
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#19 Spending by Terminated Employee
100% preventable!
Solution:
1) Get card back
2) Immediate notification by HR
3) Cancel card at bank ASAP
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T&E Shenanigans
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20: Outlandish Spending
$800 leather skirt
$300 bottle of wine
$50 steak etc.
Solutions:
1) Detailed policy setting guidelines
2) Make managers responsible
3) Warnings
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#21: Adding a Gift Card
Newest T&E fraud
Solutions:
1) Detailed receipt
2) Refuse to pay
3) Level 3 data – if T&E combined on p-card
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#22: Going the Extra Mile
Submitting extra miles for reimbursement
Solutions:
1) reasonableness
2) Mapquest etc. to estimate
3) Feature in newest T&E software
4) Make managers responsible
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#23 Double Dipping Submitting an expense twice
Same receipt
T&E, invoice, p-cards
Solutions
(not easy) – same amount on different reports
The 14-month search
Duplicate payment audit – might find
Manager review
Question items paid out of the norm
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Mary S. Schaeffer 32
#24: Personal Guests
Client or significant other?
IRS Guidelines
Solution - partial
1) Detailed receipts
2) Manager’s oversight
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#25: Employees’ Eat out on
Employer’s Dime
How? Lower level employee submits the bill
Solution
Strict guidelines Higher level employee submits
No one approves a function they attended
Automated T&E
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Closing Thoughts
Crooks creative
Stay on top of the issue
Detailed policy, strong internal controls, appropriate segregation of duties and automation will help prevent and detect many frauds.
© 2012 Accounts Payable Now & Tomorrow and
Mary S. Schaeffer 35
Thank you/Questions
Questions always welcome.
To share your thoughts and insights
Mary Schaeffer
302 836 0540
Sign up for our free weekly ezine at
www.ap-now.com/ezinesignup.html
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Mary S. Schaeffer 36
About Mary Schaeffer
Mary Schaeffer is a nationally recognized accounts payable expert. Following a career in finance she turned to writing and consulting. For the last 15 years she has been researching and writing newsletters for the accounts payable profession. Currently she is the Editorial Director & Publisher of Accounts Payable Now & Tomorrow, (www.ap-now.com) a fee-based newsletter published by CRYSTALLUS, Inc.
She also handles most of the firms consulting assignments (focused primarily on AP issues) often working with other well-regarded professionals. Her blog, at http://ap-now.com/blog/ is read by over 15,000 professionals each month.
Ms. Schaeffer is the author of over 15 business books including The CFO and Controllers’ Guide to Accounts Payable and the recently published Fraud in Accounts Payable: How to Prevent It. John Wiley & Sons is the publisher of most of her books.
She also is a regular contributor to the AICPA’s Corporate Finance Insider.
Ms. Schaeffer has a BS in Math from York College (CUNY) and a MBA in Finance from New York University.
She can be reached at [email protected]
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Mary S. Schaeffer 38
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