Protecting your company from fraud with AP automation

AP Automation Best Practices Industry News
  • April 12, 2020
  • Ryan Nelson
Protecting your company from fraud with AP automation

Protecting your company from fraud with AP automation

Fraud of any kind can provide a huge blow to your business both financially and to your company’s reputation. Unfortunately, as the current coronavirus pandemic spreads, so are the crimes related to it, particularly phishing scams.

No business should ever consider themselves safe from payment fraud. J.P. Morgan’s 2019 AFP Payments Fraud and Control Survey found that 82% of companies were targets of payments fraud last year. The U.S. Department of Commerce reports that nearly a third of business failures are related to employee theft or fraud.

Business owners have every right to be concerned. According to the National Federation of Independent Business (NFIB), an employee is 15 times more likely than a non-employee to steal from an employer, and employees account for an estimated 44% of theft losses at stores.

Employee fraud can take many forms, such as:

  • Larceny/theft
    Skimming, or diverting business funds
  • Fraudulent disbursements such as billing schemes, inflated expense reports, and check tampering
  • Embezzlement of raw materials or inventory
  • Stealing business opportunities

But the bulk of fraud, roughly 65%, occurs from outside the business. Fraudulent tactics such as email scams, overcharging, and money laundering can easily go undetected in companies that are processing hundreds of invoices a day.

Transparency and accountability in your accounts payable (AP) department is a major key to fraud prevention. When businesses automate their accounts payable processes, AP teams can better control fraud, both internally and externally. AP automation creates a foundation of scalable controls in the accounts payable process that provides continuous protection from fraud. Here’s how:

No more paper

First, when hundreds of payments are being authorized on a monthly basis, it’s easy to misfile or lose paper invoices. Completing, filing, organizing, and keeping track of paperwork also creates a strain on time. When staff gets overwhelmed or invoice approval processes fall behind, departments can miss payment deadlines, a costly and unnecessary issue in many accounts payable departments.

Paper-based systems also require manual data entry, which is often rife with human error. AP automation addresses all these issues by providing invoice entry, scanning, receipt and purchase order matching, coding, correcting errors, and data migration. Companies and employees can stay better organized and focus their time and energy on managing true exceptions.

Secondly, when it comes to fraud, the Association for Financial Professionals reports paper checks continue to lead as the payment type most susceptible to fraudulent attacks. With a digital platform, numerous safeguards, encryption, and banking-level security measures work together to protect your documents and keep your company safe from phishing scams.

Centralized workflows

AP automation software allows for greater collaboration and accountability as well as improved security and reporting. Rather than juggling a slew of messy email chains, automation transforms the accounts payable process into one centralized online workflow. Data is automatically extracted from invoices that are then routed to approvers through one online process.

Using AP automation software, departments have full end-to-end transparency into the status of an invoice every step of the way. This visibility enables AP departments to better identify suspicious payments and take the necessary verification steps before any fraudulent payments are released.

Payment controls

AP automation software provides customizable payment controls designed to automatically protect your company from payment fraud. Examples of these include:

Separation of roles

It’s important to make sure no one person does more than one leg of your Procure-to-Pay process. When departments separate AP duties, it increases accountability. AP automation software can be customized to set up separate roles for managers, approvers, and authorizers. This separation of duties prevents internal fraud by ensuring payments never get released without verification from other employees. Using a checks-and-balances approach can help catch mistakes that one person may have missed.

Two-factor authentication

Two-factor authentication, also referred to as two-step verification or dual-factor authentication, is a security process in which users provide two different authentication factors to verify themselves and provides an additional layer of security into your AP process. Two-factor authentication requires employees to enter a unique security code that they receive via text or email every time they release funds. Companies can use the two-factor authentication tool built into AP automation software to ensure that every employee involved with AP is protected from account takeovers.

Positive pay

Positive Pay requires the company to send a file of issued checks to the bank each day checks are written. When those issued checks are presented for payment at the bank, they are compared electronically against the list of transmitted checks, enabling them to verify every check payment is authorized.

Additionally, AP automation makes complying simple and minimizes audit risk. Secure, permission-based access with audit trail make complying with accounting and industry regulations easier. You can track invoice history and approvals, assure a chain of custody, apply controls for PCI, HIPPA, and other rules and regulations, and prevent documents from being destroyed or discarded ahead of deadlines.

Overall, a digital approach offers a much higher level of security for you and your customers’ data. But remember: even with AP automation software in place, fraudsters are constantly looking for the next big scheme. So, make sure you evaluate and update your fraud strategy regularly. Keep yourself one step ahead through education so you can prevent fraud damage before it occurs.

If you believe your company has been subject to coronavirus fraud, you can call the National Center for Disaster Fraud hotline at 1-866-720-5721 or by contacting the NCDF by email at disaster@leo.gov.

Ryan Nelson

Ryan Nelson is the Co-Founder and CEO of Goby. He has over 20 years in enterprise software and management consulting experience, including supply chain software implementation and process optimization for fortune 50 companies. Since 2009, Nelson has been focused on turning big data into big opportunities at Goby.

LinkedIn
Sign up for the Goby Mailing List!