xSuite Blog

Expert Knowledge on Digitalization & Automation of Business Processes

xSuite Blog

Expert Knowledge on Digitalization & Automation of Business Processes

Fraud in Accounts Payable: Fake Invoices, Real Threat

Topic: AP Automation | Digitalization


Accounts payable fraud is a common type of deceit that targets an organization's accounts payable department, which is responsible for making payments to suppliers and other vendors. The impact of AP fraud on an organization can be extremely detrimental due to the scope and amount of money involved. In fact, according to a recent report published by the Association of Certified Fraud Examiners (ACFE), a typical company loses up to five percent of its revenue to fraud every year. There are known cases of AP fraud where companies have lost an extremely large sum of money at once, such as that of Toyota Boshoku Corporation, a major supplier of Toyota auto parts, which lost $37 million through an email scam. In other cases, companies have been defrauded over a long period of time because the fraudsters have found a way to repeatedly steal smaller sums of money.

While no company is immune to AP fraud, having an automation solution can help make your business more secure and protect yourself against certain risks. Our commitment to protecting our customers from falling victim to AP fraud motivates us in our daily business.

AP fraud can take many different forms

Are you wondering what types of AP fraud you should be on the lookout for? Following are some of the most common fraud schemes:

    1. Business Email Compromise (BCE)
      Also known as “CEO fraud”, this attack targets specific employee roles within a company by fraudulently impersonating a senior executive. In this type of scam, an employee receives an email–allegedly from the CEO or another member of the executive board–containing highly confidential information and has the instruction to immediately issue the payment for an attached invoice. Due to the confidentiality and urgency of the matter, no further approval workflow is triggered. Instead, the employee receives the invoice, approves it, and releases the payment. Numerous companies of all sizes have lost millions of dollars as a result of business email compromise attacks.

    2. Duplicate Invoices
      There are two types of duplicate invoice schemes: either a vendor submits the same invoice multiple times, or he posts several invoices that only marginally differ. Detecting such fraud is extremely difficult when dealing with non-PO invoices because they cannot be matched against a purchase order.

    3. Change of Master Data
      In this scenario, a company receives an email from a criminal, who fraudulently represents one of its suppliers, stating that their bank details have changed. Without checking in with the supplier, the invoice amount is transferred to the new account.

    4. Asset Misappropriation
      In this case, two or more employees collaborate to commit fraud against their employer. While one person receives a fraudulent invoice and approves it, the other one is responsible for the next step in the AP process, which is releasing the payment. Both involved parties abuse their position in the organization to steal from it.

Even though businesses have become increasingly aware of the risks and potential damages of AP fraud, it continues to happen across different industries. One reason for this is because it’s extremely difficult to detect and prevent AP fraud without structural changes to existing business processes.

How can the AP process be more secure?

To reduce the risk of fraud, the AP process must be made more secure. This can be achieved by implementing different safety mechanisms, e.g., through the four-eye principle or by segregating the duties along the AP process. An important first step for more security is to avoid for the same employee to be solely responsible for the entire invoice processing workflow. Essentially, the person receiving an invoice must not be also allowed to approve the document and release the payment. Through the implementation of these safety mechanisms, businesses can achieve more transparency along the entire AP process and reduce the likelihood of falling victim to fraud.

However, the above-mentioned examples also demonstrate that the four-eye principle or segregation of duties alone are not sufficient. After all, when two or more employees engage together in fraudulent activities or when targeted by external fraudsters, businesses can still face detrimental damages.

Additionally, if you try to eliminate the risk of AP fraud by involving more employees in the workflow, this results in substantially more time required for your invoice processing. Just imagine the workload you would face if 100,000 incoming supplier invoices had to be manually approved by different employees and then forwarded to yet another team member.

AP automation brings more security

To fight AP fraud existing processes and structures need to be transformed by introducing digital solutions that counteract fraudulent activities. By digitizing and automating their AP process, companies automatically achieve more security through the following features:

    • 3-Way Match: Performing a 3-way match between PO, invoice, and goods receipts ensures the information on all purchase-related documents matches and increases transparency within the AP department.

    • Prediction Functionalities: Using AI, AP automation solutions can recognize patterns in large sets of data. If a supplier submits an above-average number of invoices in a given period of time, the system automatically sends an alert to inform the AP clerks about the anomaly.

    • Process Reliability: Digital, automated processes follow a defined, standard procedure that cannot be easily bypassed. That's what makes digital workflows more reliable and secure than manual ones.

The most effective way to counter AP fraud is a fully digital end-to-end solution that maps the entire process, including invoice receipt, data capture, approval, release, and archiving. This allows companies to manage the entire workflow within one system.

With the help of a digital AP automation solution, your business can define clear release strategies and successfully manage authorizations. By doing so, AP automation brings not only more transparency and speed to your invoice processing, but it’s also your best shot at eliminating the risk of AP fraud.



Danny and Katharina

In his position as CEO and President at xSuite North America, Danny Schaarmann strives to help SAP customers with their digital transformation. Industry expert and thought leader in the field of finance automation, Danny offers insights into current trends and challenges when it comes to digitizing business processes. ____________________________________________________ Katharina Sartiano is International Marketing Manager at xSuite Group. Her strong affinity for foreign languages and cultures motivated her to live abroad for several years. Through previous positions, Katharina has acquired expert knowledge in the fields of international and digital marketing.

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