CFOs today are entrusted to manage risk throughout the company, which includes detecting and stopping fraud as well as investing in cybersecurity. CFOs should understand the importance of safeguarding confidential information and be aware of the possible expenses caused by cyberattacks.
Many CFOs consider risk management, where fraud is concerned, as one of their most challenging tasks, with larger organizations facing a higher percentage of difficulties. The rise of remote workforces has added another layer of complexity for CFOs in managing fraud and cybersecurity risks, leading them to consider cloud services due to their superior security advantages.
These days, businesses falling prey to payment fraud is on the rise. This trend is particularly noticeable in the U.S. because of their continued reliance on paper checks as a payment method. Globally, the emergence of new, fast electronic payment options also makes more companies prone to fraud.
The Kroll Global Fraud & Risk Report has noted that 84% of executives from global businesses reported that their companies experienced at least one instance of fraud in the previous 12 months, up from 74% in 2017. Despite this, almost a quarter of companies did not take any new action to mitigate fraud risks in the last year.
To reduce fraud incidents and minimize their impact, CFOs should take note of the following.
Develop comprehensive and enforceable payments policies and regulations:
Anti-fraud policies should consider the various potential sources of fraud and prioritize those that could significantly impact the business. For instance, stringent controls should be in place for payments made to parties in high-risk countries. In organizations with a large and dynamic supplier base, policies should cover how newly established and recently modified accounts are handled and include screening rules for enforcing those policies (Fig. 1). As an organization's payments environment and operations evolve and become more complex. It is essential to review and update payment policies and detection mechanisms periodically.
The best fraud detection and prevention practices are essential to combat payment fraud.
Screening and detection are critical aspects of the payment workflow, ensuring that compliance with established rules is maintained and that suspicious activity is identified and quarantined. Automation tools like AI and robotic process automation can automate the screening process.
It is also vital for approvers to look out for warning signs. For example:
- Cases where there are two or more vendors with the same address and phone number.
- Vendors with names similar but not identical to those of familiar organization partners.
- Vendor accounts without a phone number, an unlisted phone number, or a non-business phone number such as a mobile phone or a number are always answered by a machine or voicemail.
- Instances when the address is a post office box or mail drop or when the address is the same as an employee's home address.
- Situations where a vendor's master data records have not been updated in a year or more.
- Invoice abnormalities include two or more invoices with the same ID number or invoices from the same vendor that are not sequentially numbered, photocopied, or scanned.
- Duplicate payment requests.
- Payments that deviate from historical levels in dollar amount and volume of invoices.
- Invoices for amounts just below the threshold that requires additional review.
- Vendors present a large number (or higher-than-average percentage) of invoices with rounded dollar amounts.
Consolidating Workflows
Organizations should merge payments and accounts payable processes that are often managed separately to improve controls and efficiency. Consolidating workflows make it easier for companies to standardize fraud prevention and detection practices, including payment requests, initiation, approval, documentation, and transmission.
This also ensures consistency when adhering to best practices and procedures across all payment types, geographies, and staff involved in payments processes and allows for quicker adaptation to changing requirements. The output of the payments process can also be reformatted to comply with global banking requirements, such as those issued by SWIFT for bank-to-bank and corporate-to-bank connectivity.
Tying It Together
Companies often fail to act against payments fraud because they may not feel the financial impact or even realize it has occurred. However, as the risks and costs of fraud continue to rise, CFOs must ensure that fraud-prevention controls are embedded and aligned with internal policies. To minimize the risk of fraud in payments, finance teams will need to continuously update their controls and collaborate with IT to ensure they have the latest defences in cybersecurity.
At the same time, CFOs must assess their payments-fraud defences, develop a list of desired capabilities, and prioritize new initiatives. These initiatives include process redesign, consolidating payments activities, and adopting intelligent FP & A software and tools, much like Epicor Financial Planner, which allows for streamlined and automated end-to-end financial processes. EFP tightly integrates with Epicor Kinetic, Epicor ERP, iScala, and P21 ensuring that there is a seamless flow of information and a single source of truth across the organization.
Book a free demo with Epicor Financial Planner today and explore how EFP can be used by finance departments and CFOs as a tactical and as a strategic tool in the financial management of the business.
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