Processing accounts payable transactions is one of the most significant activities in a contractor’s operations and is an essential component in managing cash flow and project budgets.
Unfortunately, the accounts payable function is vulnerable to fraud by individuals inside and outside of the company, and it is becoming more common and more costly. Below are a few practical measures management can take to protect and secure your resources from theft.
Segregation of Duties
Segregation of duties is a component of internal control where one person is responsible for initiating payments, and another person is responsible for approving those payments before funds are released or checks are cut. Multiple sets of eyes on each transaction assists in reducing errors and the opportunities for fraud. Having such a system in place is especially important when a demand for immediate or urgent payment is received, as that is a hallmark of a fraudster. Business owners and executives are frequently targeted by scammers, so even payments initiated by these individuals should be subject to segregation of duties.
If an established vendor calls or emails with a request to change its bank account and routing information (for ACH payments) or mailing address (check payments), a company representative should not rely on the call or email alone and should contact an appropriate individual at the vendor to verify the information. A similar process should be followed during the initial set-up of a vendor. Segregation of duties should also be followed as part of vendor verification, as the individual responsible for creating or updating vendor files should not be the same person who enters invoices or initiates payments. This prevents the disbursement of funds to a scammer.
Positive pay is a service provided by financial institutions that matches the check number and dollar amount of each check presented for payment against a listing of checks previously authorized by the company. Checks that do not match the information provided by the company are not paid. This prevents the loss of funds due to counterfeit, forged, or falsified checks.
These are just three examples of ways you can protect your company from accounts payable fraud. If you have questions or would like to discuss specific steps your company can take to assess and strengthen its accounts payable process beyond these, please contact your local Blue & Co. advisor.