The Dark Side – Purchase to Pay Fraud
Published on: 21 June 2019
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Fraud is on the rise and companies are looking for ways to prevent it. In their 2018 report on fraud for organizations, risk consultancy Kroll found that 84% of executives worldwide have reported instances of fraud*. It highlights an issue that is growing and becoming more widespread.
The Purchase to Pay process represents both a risk as well as an opportunity for reducing fraudulent activity, given that AP groups in both North America and the EMEA are responsible for some level of fraud prevention.
The types of fraud being reported include internal financial fraud, vendor or supplier procurement fraud, and compliance breaches. Business processes with the biggest fraud challenges include Purchase to Pay, according to 40% of respondents in an independent survey by Aberdeen**.
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Examples of Purchase to Pay Fraud
- Collusion can occur between purchasing and suppliers
- Employees posing as suppliers, or scam suppliers
- Transactional fraud
The opportunity for fraudsters usually arises when internal controls are weak in the areas of approvals, access controls, and reviews. Paper processes that encourage “after the fact” reports, and purchasing policies that are not enforced also play a role.
For employees, fraud is usually justified as a way to “get even” if things like benefits were cut back or a promotion didn’t occur, and the idea that the funds are being “borrowed” and will one day be “paid back”. Employees who partake in fraudulent activity may be driven by debt, a loss of income, or the need to maintain their social status. Poor management practices encourage fraudulent behavior as well.
Internal P2P Areas of Risk
A lack of follow through with regards to purchasing policies is one of the largest internal control risk areas, as well as inefficient supplier records management, unexpected changes to configurations, and split purchase orders.
Some Warning Signs
- Supplier address is P.O. box or residential
- Excessive rounding up or down for invoice amounts
- Above average payments
- Excessive voids
- Large number of invoices just beneath the approvals threshold
- Unexplained employee departure
- Invoices from different suppliers on the same invoice template
- Increases in duplicate payments
Digital transformation initiatives, policy and procedure enforcement and exploring blockchain solutions are a couple of the ways executives are trying to tackle the issues in this area. Rillion’s automated purchasing software also attacks the issue by getting control over indirect spend – an area where most employees enjoy the freedom to choose where and when they want to make purchases.
Rillion and Fraud Prevention
Rillion purchase automation provides:
- Transparency: Layers of manual processes are eliminated which reduces instances of collusion
- Compliance: Enforces segregation of duties so that policies and procedures are adhered to
- Control Over Indirect Spending: Only vendors approved by the organization can be used for purchases
Find out more about how Rillion has the functionality necessary for controlling indirect spend and reducing the risk of fraud. Get a cost effective, secure and scalable solution which matches your company’s business flows, invoices, contracts, purchase orders and employee expenses.
*Global Fraud & Risk Report 2017/18 – Kroll
**Keep Procure-to-Pay (P2P) Fraud at Bay – APP2P Conference – Doxey Inc.
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