<img src="https://i.canddi.com/i.gif?A=f0f63a3d3d2d596f1b8c53b1e727e618">

Addressing the Risk of Fraud in Your Accounting Processes

Laura Bulmer Author: Laura Bulmer

The goal of accounting processes is to accurately report on a company's financial health and to record all transactions.  Accounting processes are vital, but it is well known they are vulnerable to threats and concerns with fraud and duplicate payments being significant risks.

Does your organisation fully understand the risks and importantly, what measures can be put in place to ensure these risks are minimised?

The Importance of Accounting Processes

Without efficient accounting processes in place, business owners wouldn't know how profitable the business is.  Accounting processes are vital to be able to plan budgets, make informed decisions, and prevent fraud.  With a variety of laws and regulations in place that businesses must abide by, good accounting practices have to be in place to ensure that organisations don't break laws or incur hefty fines. 

The Types of Fraud within Accounting Processes

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

409K instances of fraudInternal 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 or in extreme cases the business can be shut down.

Duplicate Payments within Accounting Processes

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

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.

Sometimes a supplier can cancel an invoice they've sent, correct it and resend.  If invoices are being picked up by multiple people or the changes haven't been documented well enough in the process, the invoice could be paid twice.

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

Get In Touch

5 Preventative Measures to Minimise Risks in Accounting Processes 

There are preventative measures all organisations can put in place to minimise risk across accounting processes.  These could include enhanced employee training, implementing new software or having better supplier management processes in place.  In our experience the below five suggestions are what's worked well for our clients.

1. Segregation of Duties

UK_Fraud figuresIf one person has complete control over the 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.

The 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

Implement 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 organistion 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.

Your Guide to Automated Invoice Processing

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

Supplier management is something we can help organisations to fully automate with our document management software.

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:

  • Easily produce reports from your workflow system
  • Gain control of document workflows and easily identify bottlenecks
  • Gain insight into peaks and lows in activities in your workflows
  • Visualise the approval process and drill into more detail
  • Analyse team performance and identify areas for improvement or risk.

By addressing these threats with a combination of preventive measures and detective controls, organisations can better safeguard their accounting processes and financial integrity.

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.

If you would like to speak to us about the solutions we provide that will help you minimise accounting process risks, please get in touch.

Get In Touch

Contact us now for more information 0161 647 7040