| Fraud is not an easy task to commit. Money can | | | | various pre-defined criterions. Keep track of the |
| not leave the company without stringent checks. | | | | address of the vendors. How many times did he |
| Purchasing is the most crucial area to look for | | | | change the communication address, whether PO |
| frauds. Purchasing fraud in its many forms leads | | | | Box number is mentioned in the address of the |
| as a source of losses, since paying vendors is one | | | | vendor? |
| of the primary ways money leaves a company. | | | | Concurrent Analysis of Payments to Vendor: |
| Kickbacks, fake bills, fake vendors and conflicts of | | | | Payments need to be analyzed as and when they |
| interest involving companies' employees or | | | | are made. Lesser the gap between payment date |
| officers and vendors are some of the most | | | | and the analysis date more are the chances that |
| common purchasing frauds. | | | | exceptions will be caught. If the exceptions are |
| Though many of the experts say that "Internal | | | | caught real-time then it becomes easier to |
| control helps to prevent the frauds" - if this is the | | | | recover the proceeds of the fraud if there is any. |
| ultimate truth then the big companies having | | | | Perpetual analysis with tools such as $afeguard |
| stringent internal controls would have never fallen | | | | helps the owners of the businesses to check |
| prey to the occupational frauds. | | | | vendors and suspicious activities of vendors. |
| Fraud is altogether a different ball game and to | | | | Benford's analysis is one of the methods of |
| combat this creature along with the strengthening | | | | analyzing the payments digitally using statistical |
| of the internal controls one also needs to assess | | | | theorems. The frequency of the particular number |
| the risk of frauds on the perpetual basis. | | | | occurring more than its probability determines the |
| Proactively managing the risk areas is not easy | | | | patterns of payments which may result into the |
| job. External auditors can do it but the small and | | | | fraud. |
| medium sized companies can not afford the costs | | | | Require disclosure by employees and suppliers. |
| of extensive auditing. | | | | Employees responsible for purchasing, and all |
| According to the Economic Crime Survey of | | | | senior executives, should be asked annually to |
| PriceWaterHouseCoopers smaller organisations | | | | complete conflict of interest statements and to |
| detected a far greater proportion of economic | | | | disclose interests in related parties. Suppliers should |
| crime through audit processes than by other | | | | be asked to disclose their ownership and financial |
| means. Given the respective size of the | | | | condition. This helps as the deterrent for the |
| organisations this is most likely to be via the | | | | employees who try to collude with the vendors |
| external auditors - a worrying finding that | | | | to dupe the employers. There remains a moral |
| suggests smaller companies may be placing too | | | | tension when the employee gives the disclosures. |
| little attention on the development of effective | | | | Verify disclosures and reputations. Confirm that |
| controls and alternative checks and balances. | | | | the company exists as a legal entity. Check out |
| Over-reliance on a single annual review to root | | | | possible sister corporations, companies that are |
| out problems may be playing into the fraudster's | | | | affiliated with the supplier through common |
| hands. | | | | ownership or officers. Also check for multiple |
| Perpetual assessment is the key to avoid the | | | | companies at an address or phone number, which |
| frauds all across. Apart from Microsoft Access, | | | | can be easily done with a city "criss-cross" |
| Excel, ACL and Idea, $afeGuard can be a useful | | | | directory or similar resource. If two suppliers |
| tool in detecting common red flags of accounts | | | | share an address, there is a potential for |
| payable fraud schemes. | | | | bid-rigging. |
| One of the very common schemes of accounts | | | | Small Businesses often don't exert enough control |
| payable frauds is fictitious company scheme. | | | | over vendors, they don't treat control as an |
| Employee fraudsters often set up fictitious | | | | organic process, so they're not always looking at |
| vendors to commit a billing-scheme fraud. The | | | | the flow of transactions and who the vendors are |
| fictitious vendor might be a shell company that | | | | and the procedures they follow when using |
| provides no products or services. Or it might be a | | | | vendors. We still see a lack of due diligence on |
| pass-through company, where the fraudster | | | | vendors and also just a lack of a risk-based |
| becomes an unnecessary intermediary between | | | | approach where the company is constantly |
| the legitimate company and the victim company | | | | looking at situations, testing weaknesses, analyzing |
| to earn an unauthorized profit on payments to | | | | vendors and identifying suspect vendors. |
| the legitimate vendor. | | | | Some of the testing techniques include looking for |
| When setting up fictitious vendors in accounting | | | | multiple vendors at one location or phone number, |
| information systems, fraudsters often leave | | | | or vendors who use box numbers or post offices. |
| behind clues that enable auditors to detect their | | | | Consecutive or duplicate payments to one vendor |
| crimes. | | | | also merit special scrutiny, as those payments |
| Common red flags include the following:o An | | | | may be attempts to avoid authorization limits. |
| employee's home address matches a vendor's | | | | If some body asks you what is there in name? |
| address.o An employee's initials match a vendor's | | | | Then there is a possibility that you might be |
| name.o A vendor's address contains a P.O. Box.o | | | | caught on the wrong foot. Names of the vendors |
| Vendor's data is missing | | | | tell you everything. Simple analysis of the names |
| Perpetual assessments done with the aid of | | | | of vendor can raise red flags. One should be |
| software will easily catch the above fraudulant | | | | always suspicious of companies with names that |
| schemes. However there are some more things | | | | don't tell you what they do, like ABC Management |
| which virtually every business owner should know | | | | Co. or company names that are just slightly |
| in order to reduce the fraud losses. | | | | different from well-known companies like I.B.M. |
| Standards for supplier selection: Choosing the right | | | | Chemicals or Cesco Inc. Generally these names |
| supplier for the right material is not possible for | | | | are created with the intent of facilitating the |
| every organization. Especially the small and | | | | payments. Names that appear to be broker or |
| medium organizations don't formalize their | | | | sales or marketing companies should also be |
| procedures and lose substantial revenues because | | | | considered, because those are soft services. |
| of incorrect selection of the vendors. A company | | | | A last word of caution about payments to |
| should be uniform in the way it buys its goods | | | | vendors is Benchmarking. One should keep on |
| and services. This includes establishing and | | | | comparing the purchases of the company with |
| enforcing competitive bidding rules, seeking | | | | other companies on regular basis. This is a test |
| quotations from genuine vendors and rules | | | | which no software can do for the business. One |
| specifying what employees may accept from | | | | needs to keep asking if similar business |
| suppliers in the way of gifts and perquisites. What | | | | organizations require these services. If other |
| is considered as bribe is a point of legal | | | | businesses are paying at the same rate for same |
| importance in case of proceedings. | | | | services? |
| Maintain good internal controls: Keep files on all | | | | Analyzing the accounting databases on these lines |
| vendors, including information from reliable sources | | | | is not the assurance that your company is free |
| regarding the vendors' business activities and | | | | of frauds but it will definitely help in providing a |
| reputations. Keep on rating the vendors based on | | | | peaceful sleep at night. |