Supplier Payment Fraud: How it Happens And How to Avoid it

In our recent survey of payables professionals, only 14% reported the risk of fraud as a payables ‘pain point’; however 43% of respondents said that they had experienced at least one case of supplier payment fraud in the past year. 

It doesn’t take a lot of fraud to cause you, your department and your company problems. Just one incident of fraud can (and has) cost a company millions. Where is fraud commonly occurring in AP and what measures can you put in place to reduce the risk and spot the clues when someone inside or outside your company walls is up to no good?

Accounts payable and procure -to-pay professionals often follow rigorous protocols to prevent fraud. When everyone follows protocol and all the best practices are adhered to, it's difficult for scams to get through However cyber-criminals and fraudsters look to exploit any weakness and the disruption from COVID-19 has created more opportunities for fraudsters as they exploit employees working from home, rapid changes to protocols, and increased communications from suppliers.

sharedserviceslink and Apex Analytix are conducting a survey on how companies are preparing for, and whether they are seeing increased levels of Fraud.


According to Pymnts.com,AP operations were the area in which 90 percent of companies saw fraud issues the most, so AP is on the front line of combating corporate fraud. Here are two case studies showing how supplier payment fraud can impact your organization.

1. Condé Nast

In 2011, Andy Surface sent 1 email to American mass media company Condé Nast. Within 6 weeks, the company wired him $8m.

Or rather they wired the money to an account registered as “Quad Graph,” which looks and sounds an awful lot like “Quad/Graphics Inc.,” a company that prints Condé Nast titles.

According to the lawsuit, all Surface had to do was send an “Electronic Payment Authorization” form to Condé Nast, requesting that the company redirect payments for Quad/Graphics to a new bank account number, registered under Quad Graph. The form was signed, returned, and electronic payments to the bank account began shortly afterwards.

It was only when Quad/Graphics contacted Condé Nast about outstanding payments that anyone noticed. Luckily, most of the funds hadn’t been transferred, and a Federal Court Warrant froze them. But not every company recovers so easily.

*

2. CPI

Between 2014-15, Natalia Pouchinka, an employee at Crane Payment Innovations (CPI), submitted fraudulent POs and invoices for “Avnet Memmec”, a markedly similar name to trusted CPI supplier Avnet Memec. Throughout her company career, Pouchinka made 32 fictitious transactions that closely resembled real ones used by CPI, which she ultimately defrauded of $5.5m. When confronted about the missing money, Pouchinka fled to Europe, purchasing luxury cars and homes at the estimated value of $2.6m. She was imprisoned for 6 years.

How to guard against fraud in AP

These stories are far from unique. The ‘similarly-named supplier’ is one of the AP fraudster’s most popular tricks, but there a few ways you can work to improve your odds against the fraudsters. .

• Invest in good quality data. If your vendor master data has two suppliers named as similarly as in the above cases, you would likely assume there’s been a keying error at some point. Unclean data will likely be the explanation. But to check that there aren’t major problems in your invoice approval process – or worse – data analytics can reveal all with an automated report of the payment histories. It can also quickly corroborate the vendor master data with the employee master files, revealing any incriminating links between information such as address, bank accounts number, Tax I.D, etc.
• Automation. The human eye might miss subtle differences in supplier names entered on a PO/invoice, but the algorithms of AP Automation technology can register errors and discrepancies between the PO and invoice information and prevent further escalation. Automation can increase visibility of payments, meaning it’s easier to self-audit potential errors in real time.
• Holding supplier information securely. Holding the information with a trusted, secure external body can increase the accuracy of your data and keep it more secure.

Danny Thompson, Senior VP for Product Marketing and Strategy at Apex Analytix says, "To best protect against payment fraud, the critical financial control for accounts payable departments is fully automated bank account ownership validation. Automated validation confirms in real time that the legal name and business entity type on the bank account matches the supplier record in the buying organization’s system." 

AP fraud isn’t a risk you eliminate, but you can manage it.

Participate in our Covid Business impact survey

For more resources against Fraud:

Download this infographic, produced with SAP Ariba, to find out how to get more proactive about risk in the supply chain.