Addressing the Risk of Fraud and Duplicate Payments in Your Accounting Processes

Business Insights

The goal of accounting processes is to accurately report on a company's financial health and to record every transaction. Accounting processes are vital, but it is well known they are vulnerable to threats of fraud and duplicate payments.

Does your organisation fully understand the risks and importantly, what measures can be put in place to ensure these risks are minimised? Here DocTech share their advice.

The Types of Fraud within Accounting Processes

Fraudulent activities amongst accounting processes can occur in several ways, some can be accidental, whereas others are deliberate, and being aware of how they can all happen is the best way to implement preventative measures.

Internal Fraud

Internal fraud occurs when employees manipulate accounting records for personal gain. When a single employee is a key part of accounting processes and has access to all areas of financial activities, the threat of risk is realistic. For instance, they might inflate expenses, create fictitious vendors, or divert funds.

Financial Statement Fraud

Financial statement fraud involves misreporting financial information to deceive investors, creditors, or other stakeholders. It can include inflating revenues, understating expenses, or concealing liabilities from a company's balance sheet.

Any level of fabrication of a company's numbers can lead to criminal charges, financial losses and in extreme cases the business can be shut down.

Duplicate Payments

Duplicate payments occur when the same invoice is paid multiple times, either accidentally due to errors in the payment process or intentionally by exploiting weaknesses in controls.

Duplicate invoices occur when vendors submit multiple invoices for the same goods or services, leading to duplicate entries in the accounting system.

Duplicate records can arise from inaccurate data entry or system error, creating discrepancies in financial reports. Duplicate payments or invoices can take a long time to find and rectify, increasing administration costs and causing potential issues with suppliers or customers.

5 Preventative Measures to Minimise Risks in Accounting Processes

Thankfully, there are preventative measures organisations can put in place to minimise risk.

1. Segregation of Duties

If one person has complete control over accounting processes, not only is that a lot of work, but there's also a higher risk of errors as there are no further checks in place. It could cause financial loss and inaccurate information to be submitted on financial statements.

Best advice is to divide responsibilities among different individuals to prevent one person from having all the control. This not only protects the business but the employee too.

This includes where any expenses are made. Someone other than the claimant should authorise them, those reconciling cash should not have created the records being reconciled, and the full purchase to pay process should be taken care of by two or more people.

For small organisations that will struggle to achieve this, monitoring controls should be put in place.

2. Internal Controls and Training

Consider implementing policies and procedures such as approval processes for invoices and payments, regular reconciliations, and periodic audits to detect and prevent fraudulent activities.

Educate staff on fraud awareness, ethical behaviour, and the importance of following accounting procedures correctly. Establish a centralised system for receiving and processing invoices. This helps ensure that all invoices are captured and processed through a standardised procedure, reducing the likelihood of duplicates.

3. Software Technology Solutions

Automated invoice processing software with built-in controls for detecting anomalies and preventing duplicate entries or payments can save a lot of time and reduce risk. This can include checking master supplier lists and verifying bank details.

Many organisations choose to implement a structured invoice approval workflow with multiple levels of authorisation. This could be based on an employee's role in the organisation and / or the value of the invoice.

Doing this will enforce predefined approvals from appropriate staff before invoices are paid, as well as establishing clear guidelines for handling exceptions and discrepancies.

4. Supplier Management

Establish robust vendor vetting processes to ensure the legitimacy of suppliers and prevent invoice fraud. We advise having a database of approved suppliers that includes all supplier information such as name, address, bank details, trading status, accreditations and certificates etc.

These can be automatically checked each time an invoice is processed which not only improves supplier relationships, but also reduces admin and potential errors.

5. Data Analytics

Employ data analytics tools such as MI Dashboards to identify patterns and anomalies in accounting data which may indicate fraudulent activities or duplicate transactions. With these reporting tools, you will gain many positive insights as well as reducing accounting process risks.

Regularly review and update your processes and controls to adapt to changes in your business environment and emerging risks. Analyse past incidents of duplicate payments to identify root causes and implement corrective actions.

By implementing these preventive measures and maintaining a vigilant approach to invoice processing and payment management, businesses can significantly reduce the risk of fraud and duplicate payments.

Celebrating their 40th anniversary this year, DocTech provide a variety of document management solutions to minimise risks in accounting processes. Visit their website for more information.