Do this to Prevent Business Payments Fraud

by Ashley Poynter

Content Manager

Stop! Do this to Prevent Business Payments Fraud

Think your small business is safe from vendor fraud? Think again. Lackluster security measures are an open invitation for fraudsters.

And the worst part? Fraud isn’t getting any better. Just ask Christopher Arehart of Chubb:

Small to mid-sized businesses are prime targets for fraudsters. Why? Because they often rely on small teams juggling multiple tasks, leading to inevitable slip-ups. Picture this: Jane from accounting is also juggling some HR and IT responsibilities. With so many hats to wear, it’s no surprise if a few things fall through the cracks, creating golden opportunities for fraud.

Here’s the catch: larger organizations are at risk too. In fact, the more big and complex and decentralized you are (I’m looking at you, educational institutions and city governments), the easier it is for processes to get pushed to the site, audit trails to get jumbled (if they even exist), and fraudsters to penetrate gaping vulnerabilities.

Fraudsters love all organizations for their often lackluster security protocols. No robust checks? No problem—for the fraudsters, that is. Without adopting the latest technology to safeguard vendor onboarding processes, you’re just asking for trouble.

So, the lesson here? Don’t be the easy mark. Invest in proper security measures and stay ahead of the fraudsters’ game. Because in this cat-and-mouse chase, you can’t afford to be the mouse.

Detecting and Preventing Business Payments Fraud

— Vendor Controls

— Set up Due Diligence Processes

What You Can Do Right Now to Prevent Business Payments Fraud

— #1. Move Collection Burden from Initiators in Business Units to Centralized Vendor Management

— #2. Verify TIN and Banking Information

— #3. Institute Multi-Level Approvals and an Audit Trail

Nip Fraud Losses in the Bud

Leveraging Automation to Prevent Business Payments Fraud

The Easier Way to Prevent Business Payments Fraud

Get Ready for Vendor Management Appreciation Day 2024

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Detecting and Preventing Business Payments Fraud

In just a bit, we’re going to dive deep into some pretty specific things you should account for and implement this month. But before we get into the tactical plan, we want to provide a higher-level overview of some basic rules and regulations you should be following.

Vendor Controls

First off, businesses need a robust checklist for vendor onboarding. Here’s what you should be thinking about:

Follow all due diligence procedures to the letter. Pay extra attention to verifying the information vendors provide. Leveraging online document verification and vendor bank account verification technologies can streamline this process and keep things accurate.
Maintain a centralized vendor database with your preferences, including a list of high-risk vendors.
Conduct thorough checks on all vendors. Using advanced technologies can save both time and money.
Regularly review bills issued by vendors to ensure you’re not paying for things you didn’t order.

Set up Due Diligence Processes

Before onboarding vendors, establish a thorough due diligence checklist (check out our Write It Down Template). This helps new employees onboard legitimate vendors. Conduct comprehensive vendor verification, ensuring that mailing addresses are correct, bank accounts are legitimate, and all submitted documents are original and untampered.

Chris Arehart (this guy really loves talking about fraud) highlights the importance of this below:

By putting these measures in place, businesses can significantly enhance their ability to prevent business payments fraud and ensure a more secure and efficient operational environment.

What You Can Do Right Now to Prevent Business Payments Fraud

1. Move Collection Burden from Initiators in Business Units to Centralized Vendor Management

In many organizations, internal business unit customers are tasked with hiring vendors. However, vetting submitted vendor information is often not their core competency. This can lead to inefficiencies and increased risk of fraud.

Why It’s Important

The more time your internal teams spend chasing W9s, HUB diversity documentation, and insurance certificates to hand over to Accounts Payable (AP), the less time they spend doing their actual jobs. Additionally, without proper expertise, they might overlook critical details, making your organization vulnerable to fraud.

Action Steps

Create an Invitation Request Process: Implement a system where business unit initiators can request procurement or AP to invite a new vendor. This shifts the responsibility of collecting vendor information to a centralized team specialized in this task.

Timeline: 30 days planning, 30 days implementation.

Create Visibility: Develop a messaging cadence or a visibility tool for both initiators and vendors to track the status of the onboarding process. Transparency is a must to keep everyone on the same page and address problems promptly.

Timeline: To be determined, depending on resources available.

Centralize Payee Management: Manage all payee information, including businesses and individuals, in one centralized location. This centralization reduces redundancy and improves control over vendor information.

Timeline: 30 days planning, 30 days implementation.

Bonus

A centralized collection point can help control maverick spend—purchases made outside agreed contracts, which can be costly and undermine defined procurement processes.

2. Verify TIN and Banking Information

Verification of Taxpayer Identification Number (TIN) and banking information is crucial to ensure the legitimacy of your vendors. This process helps in preventing fraud by confirming that the information provided matches a legitimate entity.

Why It’s Important

Fraudsters often use false or stolen credentials to infiltrate your payment systems. Verifying TIN and banking details can prevent such attempts and protect your financial assets.

Action Steps

Avoid Email for Verification: Since email is easily hacked, implement a secondary means of verifying submitted credentials that does not rely on email.

Timeline: 1 week.

Use Independent Phone Numbers: Find phone numbers not associated with submitted invoices or vendor contact information. Communicate with vendors through these independent channels to verify their credentials.

Timeline: 1 week.

Double-Check Banking Documents: If you collect banking documents like cancelled checks or letters from banks, ensure there’s a secondary verification method. These documents can be easily forged, so a robust verification process is essential.

Timeline: 1 week.

3. Institute Multi-Level Approvals and an Audit Trail

Implementing multi-level approvals and maintaining an audit trail involves having multiple stakeholders sign off on vendor onboarding and credential changes, and keeping a detailed record of these approvals.

Why It’s Important

Relying on a single AP staff member to manage vendor approvals can lead to errors and fraud. Multi-level approvals ensure that more eyes are on the process, reducing the risk of fraud slipping through. An audit trail helps in tracking who approved what and when, providing accountability and transparency.

Action Steps

Require Multiple Sign-Offs: Do not onboard any vendors or change any vendor credentials without multiple internal stakeholders signing off. This collective scrutiny helps in catching potential fraud attempts.

Timeline: 30 days planning, 30 days implementation.

Capture Approvals in Editable Format: Keep track of who approves what and when in a format that can be reviewed and audited. This documentation is crucial for compliance and internal reviews.

Nip Fraud Losses in the Bud

To prevent business payments fraud is to fight a constant battle. But with the right processes and safeguards in place, you can protect your organization from these risks. Focus on robust vendor onboarding, stringent controls, comprehensive verification, clear audit trails, and solid insurance coverage to close the gaps that fraudsters love to exploit.

Remember, the goal is not just to prevent fraud but to build a resilient, efficient, and compliant vendor management process that supports your overall business objectives. So, take these steps seriously, implement them thoroughly, and sleep a little easier knowing you’ve fortified your defenses against fraud.

Leveraging Automation to Prevent Business Payments Fraud

Here’s a neat trick: everything we discussed above can be automated for a more streamlined vendor onboarding and management experience. Make no mistake, automation is not just a convenience—it’s a necessity, especially when it comes to preventing business payments fraud. Automated systems can significantly reduce the risk of errors, streamline processes, and provide a higher level of security.

Here’s how automation helps prevent business payments fraud:

1. Enhanced Verification Processes

Automation enables businesses to implement rigorous verification processes that are both quick and efficient. Automated systems can cross-check vendor information against multiple databases to ensure accuracy and legitimacy. This includes verifying bank account details, tax information, and other critical data points. By automating these checks, businesses can reduce the risk of fraudulent vendors slipping through the cracks.

2. Reduced Human Error

Human error is a significant factor in payment fraud. Manual processes are prone to mistakes, which can be exploited by fraudsters. Automation minimizes these risks by ensuring that payment processes follow a set protocol without deviations. This cuts down on costly errors that could open the door to fraud.

3. Comprehensive Audit Trails

Automated systems provide detailed audit trails of all transactions. These records include timestamps, user actions, and changes made, offering a transparent view of payment activities. In case of any suspicious transactions, these audit trails can be invaluable for investigations, helping to identify the source of fraud and prevent future occurrences.

4. Efficient Compliance Management

Compliance with regulatory standards is crucial for preventing fraud. Automated systems ensure that all transactions comply with relevant regulations and internal policies. This includes adhering to anti-money laundering (AML) laws, know your customer (KYC) requirements, and other regulatory frameworks. Automation helps in maintaining compliance consistently and efficiently, reducing the risk of regulatory penalties and associated fraud.

5. Streamlined Vendor Onboarding

Automated vendor onboarding processes ensure that all necessary checks are performed systematically. This includes verifying vendor credentials, conducting background checks, and ensuring that all required documentation is in place. Automation makes the onboarding process faster and more reliable, reducing the risk of onboarding fraudulent vendors.

The Easier Way to Prevent Business Payments Fraud

Automation can turbocharge your ability to fight business payments fraud. By enhancing verification processes, providing real-time monitoring, reducing human error, enforcing segregation of duties, maintaining comprehensive audit trails, leveraging advanced data analytics, ensuring compliance, and streamlining vendor onboarding, automation helps businesses safeguard their financial transactions. In an era where fraud tactics are becoming increasingly sophisticated, embracing automation is not just an option but a necessity for maintaining security and trust in business operations.

Get Ready For Vendor Management Appreciation 2024

Will you be partying with us for Vendor Management Appreciation Day (VMAD) 2024? We highly encourage you to join us!

Why? Because there’s no expiration date on honoring one of the most important, under-recognized roles across industries: vendor management.

Join us in observing Vendor Management Appreciation Day (VMAD)! We’re gearing up for the 2024 celebration, and we want you to be a part of it!

VMAD is a new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

Moreover, we’ve released gifts each month to help you supercharge your vendor management efforts. Additionally, we’re planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

In the meantime, learn more here, and grab some free vendor management goodies.