Across businesses large and small, the risk of losses from financial fraud is an ever-present concern for CFOs and CTOs. Hackers and other scammers are increasingly finding ways to exploit vulnerabilities in how a company handles tasks such as customer orders, payment processing and vendor payouts.
It's no surprise that the threat of losses from fraud is growing; 46% of surveyed organizations reported experiencing some form of fraud or other economic crime within the last 24 months, according to a 2022 survey.
The fraud risk sometimes comes from within a company at the hands of dishonest employees who work the payment process or take kickbacks from vendors. But increasingly the threat is more likely to come from outside a company.
This includes hackers seeking to steal account information via phishing attempts, vendors attempting to sneak in bogus invoices, or customers paying with a forged check or stolen card. As the incidence of fraud continues to increase and hackers grow more sophisticated, it’s never been more essential to minimize risk.
Automated AP is the First Line of Defense
A company’s back office is central to detecting financial fraud attempts, especially when relying on an AP automation platform with an integrated payments solution to serve as a watchful traffic cop over the business' cash flow.
AP automation leverages advancing technologies to improve accuracy and process documents quickly and securely to minimize the opportunities for scammers. Using a manual approach to verify vendor invoices, make payments, and remain vigilant for signs of potential fraud just isn’t realistic given the breadth of threats businesses face.
Types of Back Office Fraud
Fraud in AP departments can take many forms. The most pervasive types of fraud include:
- Billing fraud, which is difficult to identify because fake invoices will frequently appear legitimate in format and content.
- Check fraud, which accounts for 66% of payment fraud, according to the Association for Financial Professionals (AFP), due to the ease of forgery or alteration.
- Expense report fraud, which can easily go unnoticed if employees have too much freedom in their expense submissions or if systems lack proper controls.
- Vendor collusion fraud, which can also be difficult to detect, as the fraudsters often work together to cover their tracks and avoid suspicion.
Implementing internal controls to limit access to sensitive data and requiring multiple levels of approvals on invoice payments can help AP teams prevent financial fraud. But security minded CFOs and CTOs know that the most effective approach to fraud prevention requires leveraging technology that can scale along with the growing threats.
Here are four advantages of automated payments that help reduce the risk of back office fraud:
1. Optimal Visibility
AP automation solutions integrated with payments functionality allows accounting staff to have real-time visibility into every invoice and transaction in the AP audit trail.
This gives AP teams and system admins insight into the status of payments and invoices. Apart from being an efficient way to more accurately keep tabs on cash flow, it makes easy work of verifying payment, invoice, and vendor information.
Payment tracking combined with the use of optical character recognition (OCR) software can automatically identify potential errors like mismatched line items – or anomalies that could end up being fraudulent payments.
2. Streamlined Payments
One of the best ways to make it harder for hackers and other scammers to access sensitive account details or hijack the procure-to-pay process is to streamline how payments are made to vendors.
By automating payments, the approvals process – based on custom, pre-set rules – is also automated and the vendor gets their payment faster.
The process eliminates the need for manual entry of the kind of data that hackers love to get their hands on, including bank account numbers and other critical information that might otherwise be easier to access if left to an AP team member to handle directly.
3. Payment Flexibility
While no payment is hack-proof, it’s no secret that older forms of payment can be more easily exploited by scammers than digital forms of payments, like virtual credit cards.
Paper checks top the list, with the odds that they can be successfully used in a fraud scheme about 20 times higher than other forms of payments.
While some vendors and customers may still prefer paper checks, being able to offer a variety of more secure digital payment methods increases the likelihood that a vendor or customer will forgo old-school checks.
The advantages of digital payments are clear. Funds are sent via encrypted channels, making it harder for scammers to intercept data or to initiate fraudulent transactions.
Still, plenty of vendors continue to favor payments via ACH debits, which next to checks are the payment method most often used in fraud cases, according to a report by the Association of Financial Professionals.
An automated payments platform can mitigate the risk of fraud in several ways. In addition to blocking suspect ACH transactions, it can alert AP teams so they're aware, and if necessary, can report them.
4. Secure Vendor Management
Another way to reduce fraud risk is to incorporate your AP automation and payments platform into a secure vendor management system.
Such systems are helpful tools to organize vendor information, but by integrating them into your AP automation solution directly or via an ERP, you can prevent a host of errors. For example, errors may include vendors without proper certifications or out-of-date insurances; duplicate, unknown or unregistered vendors; and, invoices that may have incorrect information.
Automatically verifying vendor information, such as bank account and tax identification numbers, helps keep AP teams aware of any unauthorized changes that may be a prelude to a scam.
A Bulwark Against Back Office Fraud
The threat of fraud poses a complex and ever-present challenge for CFOs and CTOs, but relying on a strong AP automation platform can minimize a company’s risk.
DocuPhase's AP automation solution with integrated payment functionality can manage complex AP workflows, resulting in more reliable payment processing and real-time visibility to guard against back office fraud.
Contact us today for a demo to learn how DocuPhase can strengthen the security of your workplace while saving you time and improving your team’s efficiency.
