Robust controls are essential for getting a grip on a business’ finances, particularly those over expenditure covering the tracking of purchase commitments and supplier invoice processing.
Weak control, combined with a lack of visibility of cash flow and the processing of supplier invoices significantly increases the risk of fraud.
This appears to be the current state at the majority of UK businesses with 76% of finance decision makers admitting they are not confident that their current accounts payable (AP) processes are strong enough to detect or prevent fraud.
This finding is part of a research report we have recently published and the ‘Changing trends in the purchasing processes of UK businesses’ makes worrying reading for those involved in business finances.
In fact, according to our research, 27% of these decision-makers believe their current systems and processes are placing them at an unreasonable exposure to fraud.
This exposure is not limited by company size, our research found a consistent problem with the exposure to an unreasonable risk of fraud arising from poor AP practices concerning both small and large businesses:
- 23% of decision-makers in large businesses are concerned about fraud;
- 31% of decision-makers in small businesses are concerned about fraud.
Exposure to payables fraud is a significant problem for businesses, and it is clear that too many are not putting in the processes they need to keep their finances secure.
Using automation in purchasing and accounts payable is one way in which businesses can make their controls more robust. This provides visibility and control over transactions and importantly frees up staff time to address the risks of fraud through improved processing efficiencies.
Moving the point at which the control over expenditure is committed by automating the purchasing process can significantly improve control particularly if the budget holder responsible for the expenditure has visibility of the available budget at this decision point.
Automation can significantly speed up the processing of supplier invoices and allow more timely and accurate management accounts.
This provides early visibility of the level of expenditure compared to budget and highlights exceptions at the reporting level.
Automation can free up staff time to investigate these exceptions and this, in turn, reduces the risk of fraud.
Making transactions visible
Knowing exactly where an invoice is in the process is often a problem for businesses with manual systems. This lack of visibility increases the risk of fraud. Time taken up dealing with supplier queries can crowd out time available to exercise internal controls when teams are under pressure to meet payment deadlines.
Automation can make the process visible, as digital copies of invoices follow a workflow and there is an audit trail throughout the process. Dealing with supplier queries can be immediate, a simple enquiry will identify where the invoice is currently in the process.
Automation tends to move the focus of work towards exceptions and increases the visibility and timeliness of how these are resolved, leaving less room for fraudulent transactions.
Supplier list and payment controls
Maintenance of the supplier list is a key control. Automation can give staff back the time to exercise controls in this area.
Automation can ensure only invoices from approved suppliers are processed and any additions to the list are handled through a standardised supplier onboarding process.
There is a lot of exposure to fraud arising from amendments to existing supplier accounts, particularly changes to payment details. A change in the supplier bank sort code and account details on an invoice needs to be treated as an exception and, if properly audited, automation can help ensure that there is both the capability and the time to check these details.
Controlling your transactions
A robust approval process is essential for strong internal control.
Automation requires the establishment of an approval matrix that has to be consistently applied ensuring that the right people with the correct level of authority approve each invoice.
One source of fraud in manual systems is the weakness of signatures controls, which is often fed by a lack of clarity over who can sign for what (the authority register). A number of recently reported frauds have arisen because invoices have been approved by individuals other than the authorised signatory.
An automated system using a workflow requires the approval to be provided by the person with the digital credentials, who is the designated person or group of persons on the authority register.
Taking control over your finances to protect your business
The uncertainty shown by respondents to the survey when it comes to protecting their business from accounts payable fraud highlights the need to address the efficiency, visibility and control over the purchasing and payables processes.
This is where automating accounts payable systems can be a saving grace.
Efficiency has a significant role to play in fraud protection because it both:
- frees up staff from mundane tasks like data entry and provides human resources to check exceptions;
- and removes the time pressure on processing transactions which is a breeding ground for fraud.
Visibility has a significant role to play in fraud protection because fraud thrives in dark corners. Two preventive measures are:
- knowing the stage that an invoice is at in the process;
- and the ability to view a full audit trail of who has accessed the invoice and what actions they had taken.
Robust controls are fundamental to fraud prevention and detection. Automation can often lead to a streamlining of the number of controls and touchpoints in a payables process, moving the process towards management by exception and bringing key controls into focus.
When it comes to using automation to reduce the risk of fraud, it is key to remember:
- Budgets can be operated proactively;
- Controls over master files like the supplier list are brought into focus;
- Rules are applied to well-defined roles ensuring that transactions are processed and approved consistently.