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Fraud and Other Shenanigans in Accounts Payable
Mary SchaefferPublisher & Editorial Director AP NowAuthor 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
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Agenda
IntroductionInvoice FraudCheck Fraud e-FraudP-card Fraud T&E FraudClosing Thoughts
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer2
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Introduction
The honest mistake issue
It happens at every organization
Fraud comes in two flavors
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer3
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The Good, Bad & UglyThe 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. Schaeffer4
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Invoice Fraud
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer5
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#1 Phony Invoices
Yellow pages ads, copier toner, help-wanted
A word about billing noticesItems that skirt the law
Look like invoices (really)
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer6
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#2 Inflated Prices
Vendors knowingly charge higher prices than agreed toDifficult to prove
Solution: 1) Complete Pos2) Line item matching – automation a big
help hereIdentify vendors
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer7
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#3 Unauthorized Charges
Vendor charges for freight etc. that was supposed to be included
Difficult to prove
Solution:
1) Complete Pos2) Line item matching – automation a big
help hereIdentify vendors
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer8
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#4 Duplicate Invoices
Invoices submitted a second time with the intent of getting the vendor to pay twice
SolutionInvoice number controlCheck for duplicate payment amountsRely on approver
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer9
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#5 Suppress Credits
Vendor statements with credits suppressed
Solution: 1) Use best practices so credits not created2) Request statements and follow up on a
timely basis3) Hire an audit firm
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer10
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#6 Checks Intended for Others
How:1) The Master Vendor File Scam2) The Return to Requisitioner Scam3) Honest mistake
Solutions1) Good controls on MVF 2) Reports on changes3) Don’t return checks to requistioners4) The form for returned checks
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer11
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#7 The Credit Hold ScamThe threat of putting the organization on
credit hold unless an invoice is paid NOW
Solution:1) Don’t over react2) Double check before blindly issuing the
payment3) If payment is made, close the PO and
extinguish the receiving docs
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer12
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Check Fraud
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer13
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#8 Phony Checks: Your Bank Info
PhysicalElectronic; Internet orders
SolutionPositive pay for physical checksDaily reconciliations of bank accountsSeparate account for refund checksACH blocks, filters
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer14
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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. Schaeffer15
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#10 Stolen Checks: Payee Name Changed
Example of how crooks are getting smarter
Solution: Payee name positive pay Direct deposit
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer16
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Electronic Fraud
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer17
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#11: Positive Pay RejectsResubmitted as ACH debits
Solution:1) ACH blocks, filters2) Daily bank reconciliations3) of course, positive pay
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer18
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#12: Unauthorized ACH Transactions
Can be debit or creditSeveral variations
SolutionsACH blocks, filtersDaily bank recsSeparate computer for online banking
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#13: Corporate Account Takeovers
How they work
SolutionsSeparate computerCareful with attachmentsCareful clicking on linksCareful even with legitimate looking emailsBetter updating of contact info
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer20
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#14: Ridiculous e-mailsThe ones that scream scam
SolutionsObviously, don’t respond
DO NOT CLICK ON ANY LINK IN THEM – just to see
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer21
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#15: Serious Looking EmailsExamples
Includes NACHA, FBI, Feds etc.Your ACH payment has been returnedLooks like it came from your bank
SolutionsKeep contact info updated – and verify
separatelyDon’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
SolutionsVerify separatelyGet contact info when setting up master
vendor fileKeep contact info updated
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P-card Fraud
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer24
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#17: Unauthorized Spend
Could be for personal useCould 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
SolutionDetailed policyRun reports identifying such chargesTalk with purchaser and/or sup
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#19 Spending by Terminated Employee
100% preventable!
Solution:1) Get card back2) Immediate notification by HR3) Cancel card at bank ASAP
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer27
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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 guidelines2) Make managers responsible3) Warnings
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer29
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#21: Adding a Gift Card
Newest T&E fraud
Solutions:1) Detailed receipt2) Refuse to pay3) Level 3 data
– if T&E combined on p-card
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer30
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#22: Going the Extra MileSubmitting extra miles for reimbursement
Solutions:1) reasonableness2) Mapquest etc. to estimate3) Feature in newest T&E software4) Make managers responsible
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#23 Double DippingSubmitting an expense twice
Same receiptT&E, invoice, p-cards
Solutions(not easy) – same amount on different
reportsThe 14-month searchDuplicate payment audit – might findManager reviewQuestion items paid out of the norm
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer32
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#24: Personal GuestsClient or significant other?IRS Guidelines
Solution - partial1) Detailed receipts2) Manager’s oversight
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer33
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#25: Employees’ Eat out on Employer’s Dime
How? Lower level employee submits the bill
SolutionStrict guidelines
Higher level employee submitsNo one approves a function they attended
Automated T&E
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer34
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Closing Thoughts
Crooks creativeStay 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. Schaeffer35
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Thank you/Questions
Questions always welcome.To share your thoughts and insights
Mary [email protected]
302 836 0540
Sign up for our free weekly ezine atwww.ap-now.com/ezinesignup.html
© 2012 Accounts Payable Now & Tomorrow and Mary S. Schaeffer36
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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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“75% of enterprises use a fully manual indexing and approval process.” – Aberdeen Group
It’s time to Let Go and Gain Control. Automate your Accounts Payable.
Visit http://www.anybill.com/ today!© 2012 Accounts Payable Now & Tomorrow
and Mary S. Schaeffer38