This article, focusing on expenses, is part of HLB Mann Judd’s fraud review series which takes a closer look at potential areas of fraud and provides tips on how to mitigate fraud.
There are various ways an individual can manipulate expenses to conduct fraud. Here we examine two forms of fraud, being via creditor payments and supplier selection.
Payments made to creditors present significant scope for fraud to occur. In the absence of strong controls, unapproved, duplicate or overpayments may be made.
Your business’ Vendor Masterfile (VMF) contains records of your suppliers, including bank account numbers. Weak VMF controls expose you to the risk of unapproved changes to a supplier’s bank account with funds directed elsewhere.
- Confirm an appropriate level of authorisation is always required for payments to be made, including bank approval to release the funds.
- Understand your business’ requirements and analyse purchases to identify duplicate or unapproved payments.
- Segregate duties relating to the maintenance of the VMF, purchasing, authorisation, invoice processing, payments and bank reconciliations.
High risk: If signatories do not review supplier bank account numbers before releasing payment, it is simple for employees to update details and divert funds.
If your business has weak controls for the process of selecting suppliers, you may be exposed to the risk of engaging false suppliers, suppliers who charge above-market rates, or those providing kickbacks.
- Have a rigorous process whereby multiple suppliers are examined before selection. This decision should be made at an appropriate level of seniority, reviewed by another employee and appraised periodically.
- Review supplier arrangements annually to confirm prices are reasonable.
Example: An employee and supplier have a close relationship. The employee and supplier collude to raise false invoices/inflate prices and split the proceeds.
How HLB Mann Judd can help you
No business is fully protected from fraud. Management must consider what their fraud tolerance is and determine what processes best mitigate fraud.
The Corporate Advisory division at HLB Mann Judd are experts in assisting businesses identify and alleviate fraud.
If you or someone you know are concerned with the scope of fraud in expenses, or any other aspect of the business, our team can assist to identify risks, test identified areas and provide specific recommendations to protect against fraud.