How to Detect Theft in Small Business Accounts Payable

When times are tough, people can get disparate…. As the economy huffs and puffs along, it has left in its wake a surge in business theft, and this trend has had a disproportionate impact on smaller businesses. According to the Association of Certified Fraud Examiners (ACFE), employee theft at businesses with less than 100 employees cause an average loss of $200,000; that’s $57,000 more than the average loss of bigger businesses.

 

A while back I did a series on employee theft in general- what the effect is, how to spot it, and how it can be prevented within a small business. Recently, much attention has been given to the rise in reported incidents of accounts payables fraud within smaller businesses; so I thought it would be a good idea to cull a few tips on how to spot this kind of fraudulent activity based on the advice of ACFE and experienced auditing companies.

Here are a few telltale signs to look out for:

1. Duplicate or similar payments. One glaring red light is repeated incidents of duplicate payments being made for the same or similar amount, to the same vendor, and/or with the same or similar date.
2. Invoices just below approval limits. Repeated invoices set at amounts that lie just below the threshold for managerial approval- whether in terms of amount or billing cycle- should be flagged as questionable.
3. Rounded-off billing amounts. The presence of invoices for rounded amounts- ie those rounded to the nearest dollar amount. May be a sign of fraudulent activity.
4. Fishy vendor information. Some signs to be on the lookout for include: the absence of a phone number, or a home phone, multiple vendors with the same number, and phone numbers that always go to an answering machine; PO box billing addresses or billing addresses that are far away; mis-spelled or similar-sounding vendor names.
5. Unusual invoice activity. Bursts or lulls in invoice activity, above average invoiced amounts, and activity occurring at abnormal times are all possible signs of employee theft.

 (Image Credit)

Sources:

http://www.auditnet.org/articles/10waystoidentifyAPfraud_Pt1.pdf

http://www.allbusiness.com/manage/finances/12375493-1.html