Fraud is on the rise: here’s how to beat it

Estimated Reading Time: 7 minutes

We all know that the pandemic caused huge disruption in the way we work. Accounting teams were no different from other sectors, as we had to adjust to remote working and the long hours that often came with it. What you might not know is that the top concern for accountants as a result of all these changes is the risk of fraud and abuse they bring.

Beanworks found out what the biggest pain points are for finance teams in our survey, The State of Accounts Payable. We questioned 600 accounting professionals, all of whom work in accounting, accounts payable (AP) or have a leadership role in finance. Everyone who responded works in North America for a company that employs more than 100 but fewer than 5,000 staff. They explained how they are responding to these challenges, and we discovered some revealing truths about those organizations that are thriving compared to those that are still struggling in 2021.

The economic upheaval caused by COVID-19 led to a flurry of unusual financial transactions — expedited orders, changes of banking information and new payment methods. An urgent request that would have raised eyebrows in the past might not have seemed so alarming in a situation of crisis. Some estimates say that online fraud attempts increased by as much as 25% in the US alone, as fraudsters exploited this unusual environment to their own ends.

Let’s take a look at which areas of finance were most affected by this, the measures that accounting departments took to combat fraud and some tips and advice on how to prevent being cheated. We will also examine some key examples of companies that dealt with fraud this year, to see what we can learn from them.

Fraud uncovered

The key to tackling fraud and abuse is understanding why it has increased in the first place. What are the kinds of scams and errors that our respondents have encountered since the start of the pandemic? There are several areas of finance that our survey revealed as vulnerable. Fraudsters are opportunists, and they realised that the pandemic may have weakened controls at institutions. Phishing scams were rife during the pandemic, and finance teams were the main target of this. In total, 68% of our respondents saw an increase in vendor and seller fraud. Examples include price gouging, product misrepresentation and overbilling. The vast majority — 78% — said their AP department had received a fraudulent invoice in the past year.

The amount of information available for fraudsters to exploit is also higher than ever before. There has been an increase in data-mining capabilities, putting companies’ financials and sensitive data at risk.

Another key focus is expenses, which was the second most reported fraud during the pandemic so far. In fact, expense violations rocketed by 292% in 2020. This year, 62% of businesses were still encountering out-of-policy expenses claims. Manual and paper-intensive processes are part of the problem. Sifting through stacks of paper receipts to verify each report takes up valuable time each month, especially when you consider that one in five expense reports contains errors. As the number of expense claims increases with remote workers paying for things that would have been covered by their office in the past, it becomes harder and harder to keep track and spot anomalies.

Auditing has also become more difficult. Auditors are struggling to access data, and it is harder for them to audit approvals on a mixture of paper and systems such as email, spreadsheets and dropbox folders. Any companies that implemented short-term solutions as they were hit unawares by the pandemic could face problems once it is time for their annual audit.

The root problem for most of our respondents was a reliance on manual, paper-based processes. It led to a lack of transparency over financial systems, which 63% of those surveyed said was the reason they worked more overtime hours during COVID-19. Finance employees are working an average of 10 hours overtime per week. One of the causes of this is the difficulty in accessing physical documents remotely. What they needed was a central platform they could get this information on, but too often this has been lacking.

“I would say we have saved at least 50% of our time. I also look at the time that department heads are spending on approvals, and that’s gone way down. They don’t have to traipse up to accounting and they don’t have to sign off on paper.”
Dean Olevson, Director of Finance at Radisson Blu Minneapolis Downtown

When data is uploaded onto multiple different systems, it leads to information silos, as well as errors and omissions. No wonder it is hard to spot red flags in that climate. What most accounting teams have noticed is that it also leads to a huge time drain. Maintaining and managing the data in all those systems amounts to a full-time job.

Manually matching documents can take hours, and it can be nigh-on impossible to notice fraudulent or duplicate invoices. Employees often make their own short-cuts and systems, creating a disconnect between procurement and the formal AP system. Payments errors are also down to manual data entry, according to 88% of our respondents. Most businesses are still struggling with the real-time demands of a digital economy while being forced to rely on paper checks that burden them with inefficiency, and a lack of visibility into when or how much they will be paid.

How to fix fraud

Even when your team is working from home, it is still possible to gain more control and visibility over your organization’s finances. Start by setting up two levels of approval such as the manager and the purchaser. A good practice is to always have one other person approve payments other than the purchaser themselves.

Secondly, know the signs of a scam. The most common sign that an email could come from a dubious source is the domain name. Fraudsters will purchase domains that resemble supplier domains but are slightly different. Also look for invoices that lack information such as an address or a phone number; supplier purchase prices that seem unusually high or low; and vendors that do not use a work email address, instead opting for a free provider such as Gmail.

Separate your approvals processes for invoices and payments, and create a bank change form. When a vendor asks for their bank details to be changed, you must confirm the legitimacy of the request. To do this, you can ask questions such as what their last payment date was, or the last invoice amount.

Here are some tips for busting expense fraud:

• Formalize and enforce your expenses policy
• Digitize receipts immediately after receiving them or use an electronic system for this
• Eliminate double data entry
• Customize receipt categories that map to your GL codes
• Automate expense approval routing

Automated AP solutions can help prevent fraud in all your AP functions, as well as eliminating manual data entry by 83%. Errors such as duplicate invoices are automatically flagged by a system such as Beanworks. Organizations we surveyed that have implemented a solution such as AP software have realized savings of 60-80% when compared to those still stuck with manual processing. Of those we surveyed that had success during the pandemic, 94% said AP automation was a big contributing factor.

“The biggest benefit is that we don’t have to go to the filing cabinet. We can just pull up the invoice or the purchase order within Beanworks and check the details. Everything’s right there. There’s less overtime in accounting and we’re happy about that.”
Donna Saunders, Financial Controller at Huntsville International Airport

61% of companies that have automated their PO process reported improved procurement visibility and transparency. Accurate budgeting and forecasting driven by data are easier to achieve with automation. It helps finance teams analyze their spend before it happens, rather than after the fact, giving greater control and security over potential fraud. Everything can be viewed on a central dashboard which is accessible even when teams are working remotely.

With Beanworks, companies can create a formal customized purchasing process that controls who is able to buy what and how much money they can spend. They can set spending limits based on department, project, vendor, or set manager budgets to control department spend and stop unapproved purchases. When invoices and payments are automatically matched, double data entry is banished for good.

Digital payments generate digital audit trails, and help prevent internal and external risk by flagging duplicates. The automated software will also provide vendor banking data management security, and some even assume liability for correctly paying vendors. With a secure payments provider, every transaction is insured with a payment guarantee or warranty.

Companies that combated crime and manual entry

Several Beanworks customers have been able to automate their AP function and get better security and control over financial processes as a result. Huntsville International Airport, a Beanworks customer, said their team has gained much greater visibility since automating its AP. Donna Saunders, Financial Controller, said: “The biggest benefit is that we don’t have to go to the filing cabinet. We can just pull up the invoice or the purchase order within Beanworks and check the details. Everything’s right there. There’s less overtime in accounting and we’re happy about that.”

Another Beanworks customer, Radisson Hotels, recently automated their invoices and expenses workflow. Dean Olevson, Director of Finance at Radisson Blu Minneapolis Downtown, said: “I would say we have saved at least 50% of our time. I also look at the time that department heads are spending on approvals, and that’s gone way down. They don’t have to traipse up to accounting and they don’t have to sign off on paper.” As a result, his team has been able to go 85-90% paperless and can access the data they need within a central dashboard.

Douglas Chow, finance supervisor at Science World, Vancouver, said automation had helped his AP department keep going during the pandemic. “Our CFO was always surrounded by a growing stack of invoices and checks to approve — more than 250 every week. With Beanworks, making payments is much easier. It’s very rare that an electronic payment gets lost. With checks, there’s always the risk of them getting lost in the mail or delayed during a crisis like COVID-19.”