Fraud is not an easy task to commit. Money cannot leave the company without strict controls. The purchase is the most crucial area to look for fraud. Purchasing fraud in its many forms is a source of loss, as paying suppliers is one of the main ways money leaves a company. Bribes, false invoices, false vendors, and conflicts of interest involving employees or officials of companies and vendors are some of the most common purchasing frauds.

Although many of the experts say that “internal control helps prevent fraud,” if this is the ultimate truth, large companies that have strong internal controls would never have fallen victim to workplace fraud.

Fraud is an entirely different ball game and to combat this creature, along with strengthening internal controls, it is also necessary to assess the risk of fraud in perpetuity. Proactively managing risk areas is no easy task. External auditors can do this, but small and medium-sized businesses cannot afford the costs of an extensive audit.

According to the PriceWaterHouseCoopers Economic Crime Survey, smaller organizations detected a much higher proportion of economic crime through audit processes than by other means. Given the respective size of the organizations, this is more likely to be done through external auditors, a worrying finding that suggests smaller companies may be paying too little attention to developing effective controls and alternative checks and balances. Over-reliance on a single annual checkup to eradicate problems may be playing into the hands of the scammer.

Perpetual pricing is the key to avoiding fraud everywhere. In addition to Microsoft Access, Excel, ACL, and Idea, $afeGuard can be a useful tool for detecting common red flags of accounts payable fraud schemes.

One of the most common accounts payable fraud schemes is the shell company scheme. Employee scammers often set up fictitious providers to commit billing scheme fraud. The fictitious supplier may be a fictitious company that does not offer products or services. Or it could be a pass-through business, where the scammer becomes an unnecessary middleman between the legitimate business and the victim business to make an unauthorized profit on payments to the legitimate vendor.

By establishing fictitious suppliers in accounting information systems, fraudsters often leave clues that allow auditors to detect their crimes.

Common warning signs include the following:

o An employee’s home address matches a supplier’s address.

o An employee’s initials match a provider’s name.

o A provider’s address contains a PO Box.

o Provider data is missing

Perpetual evaluations done with the help of software will easily detect the above fraudulent schemes. However, there are a few more things virtually every business owner should know to reduce fraud losses.

Standards for supplier selection: Not all organizations can choose the right supplier for the right material. Especially small and medium-sized organizations do not formalize their procedures and lose substantial revenue due to incorrect selection of providers. A company must be uniform in the way it purchases its goods and services. This includes establishing and enforcing competitive bidding rules, seeking quotes from genuine suppliers, and rules specifying what employees can accept from suppliers in the form of gifts and gratuities. What is considered bribery is a point of legal importance in case of processes.

Maintain good internal controls: Maintain files on all suppliers, including information from reliable sources about the business activities and reputation of the suppliers. Continue to rate vendors based on various predefined criteria. Keep track of providers’ addresses. How many times did the communication address change, if the PO box number is mentioned in the seller’s address?

Concurrent analysis of supplier payments: payments must be analyzed as they are made. The smaller the gap between the payment date and the analysis date, the greater the chances that exceptions will be detected. If exceptions are caught in real time, it will be easier to recover proceeds from fraud, if any. Perpetual scanning with tools like $safeguard helps business owners verify vendors and vendor suspicious activity. Benford analysis is one of the methods to analyze payments digitally using statistical theorems. The frequency of occurrence of a particular number greater than its probability determines payment patterns that can result in fraud.

Require disclosure by employees and vendors. Employees responsible for purchasing and all senior executives should be required annually to complete conflict of interest statements and disclose interests in related parties. Providers should be asked to disclose their ownership and financial condition. This helps uncover employees trying to clash with vendors to cheat employers. A moral tension remains when the employee gives the disclosures.

Verify disclosures and reputations. Confirm that the company exists as a legal entity. Check out potential sister corporations, companies that are affiliated with the vendor through common ownership, or officers. Also search for multiple businesses at one address or phone number, which can be easily done with a city “crisscross” directory or similar resource. If two suppliers share an address, there is the possibility of bid rigging.

Small businesses often don’t exercise enough control over suppliers, they don’t treat control as an organic process, so they don’t always look at the flow of transactions and who the suppliers are and the procedures they follow when using them. We still see a lack of vendor due diligence and also a lack of a risk-based approach where the company is constantly analyzing situations, testing for weaknesses, analyzing vendors, and identifying suspicious vendors.

Some of the testing techniques include searching for multiple providers on a location or phone number, or providers using box or post office numbers. Consecutive or duplicate payments to a provider also deserve special scrutiny, as those payments may be attempts to avoid authorization limits.

If someone asks you what is in the name? Then there is a chance that you will be caught on the wrong foot. The names of the vendors tell you everything. Simply looking at vendor names can raise red flags. One should always be suspicious of companies with names that don’t tell you what they do, like ABC Management Co. or company names that are slightly different from well-known companies like IBM Chemicals or Cesco Inc. These names are usually created with the intention of facilitate payments. Names that appear to be brokerage or sales or marketing companies should also be considered, because those are soft services.

One last word of warning about vendor payments is Benchmarking. One should continue to compare the company’s purchases with other companies on a regular basis. This is a test that no software can do for the business. One must keep asking if similar business organizations require these services. If other companies are paying the same rate for the same services?

Analyzing accounting databases along these lines is no guarantee that your business will be fraud-free, but it will definitely help provide a restful night’s sleep.