How do you solve the supplier invoice puzzle?

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Barely a week goes by without another story in the media of frauds perpetrated on companies that do not have adequate accounts payable controls. Tom Herbert turns to AccountingWEB members for their horror stories and advice about how to minimise the potential risks.

One of the most common variants of invoice fraud occurs when someone sets up a supposedly legitimate invoice for services or products that are never fulfilled. If the scam is not picked up, the frauster is likely to keep going back to the well until they are rumbled.

According to Concur, 20% of organisations reported they had received fraudulent invoices - a somewhat conservative figure we suspect - and 3% confessed to paying them.

“I can't remember at time when fake invoices were not arriving at companies I worked for,” commented AccountingWEB member slarti.

Duplicate invoices are an even more pernicious problem than outright fraud, with one in three organisations reportedly paying out on duplicate bills. The figure rises to nearly 60% among businesses with more than 1,000 employees.

Paper invoices and PDF copies can also get lost or rerouted, leading to payment delays that can sour relationships with suppliers, potentially disrupting company workflows at crucial times.

Fraud and administrative errors are indicators of poor controls in accounts payable processes. Following a previous consultation with AccountingWEB members on expense claims, we turned to our community of finance professionals to find out more about their frustrations in this area, and how they addressed them.

Consistent processes based on segregating input, reviews and payment of invoices are an essential foundation. For example the classic ruse of channeling a supplier payment to a separate bank account can be stopped at source if software access controls are set so that only specific people (not those entering purchase orders) are able to change supplier bank details.

Good controls also depend on workflows that ensure finance managers have adequate visibility over the transactions to check anomalies that might indicate a transaction is not what it seems, such as an invoice with inadequate detail or no matching purchase order.

AccountingWEB member tom123, himself a finance director, deploys three-way matching at his company. The main troublespots he encounters revolve around:

  1. Obtaining all delivery notes from stores.

  2. Fiddly invoices (generally from Europe), where it is difficult to see unit and extended prices.

  3. Processing price variances.

  4. Multi-line purchase invoices not presented in the same order as the items on the PO.

Even with suitable software to handle the incoming bills, tom123’s ability to review the fragmented information sources was compromised. For example, when confronted with a 50-line invoice relating to a partial order delivery, it can take him “ages” to find out what is missing.

Trouble comes in batches

According to AccountingWEB member Grundy, “paper cuts” were one of the biggest occupational hazards for finance teams processing invoices. The amusing riposte set off a whole conversation around the ability of modern cloud software to accommodate batch invoices. Paul Scholes offered a brief history lesson for younger readers with less experience of this issue might not be aware that desktop programs are often better equipped to handle batch inputs.

“With computerised systems this became less relevant as the invoice is produced and sent to the customer from within the software. If this is not possible then most businesses can produce a spreadsheet of the period's invoices to be imported into the app,” he said.

Sales invoices are usually under control of the finance team (and its software), but supplier bills and invoices often still arrive in paper form and need to be entered into the accounting workflow. Entering invoices manually is the lowest form of financial torture and mistakes invariably arise as a result.

Orif they are put aside into an “I’ll get around to it” in-tray, pending invoices from previous months could end up being missed for approval, with all the hassles that entails.

Cloud systems do not always take away the pain, however. Scholes pointed out from experience that discrepancies can arise from how cloud application programming interfaces treat the incoming information. One well known bookkeeping system he used could not import a bill image or recognise anything other than UK VAT purchases, so he had to manually add the image and edit overseas bills after import, he noted.

“I have also had issues with different systems, both bookkeeping and bill processing, over differentiating supplier bills from employee expenses.”

Segregation of responsibility should not result in siloed information. Nor the kind of leaky system integration that contributed to Scholes’ data import frustrations be allowed to skew transparency. Good fraud (and error) defences start with the ability to access a unified view of commitments and transactions as they arise. This oversight will enable the analysis and checks that ultimately detect fraud and eliminate the errors that can cost businesses so much.

Simplify and speed up capture while providing more visibility into every step of the process with accounts payable software from SAP Concur.

 

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)

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