Accounts payable fraud is a growing concern for local governments, with vendor scams becoming an increasingly common problem. Bad actors are contacting local governments, claiming to be from a vendor and requesting changes to addresses or bank information. Without proper controls in place, these changes are often made without verification, resulting in payments being made to the bad actor instead of the vendor.
This kind of fraud is more likely to happen to local governments because they are required to publish warrant registers as a part of the agenda reports and many agencies publish the unclaimed property list on the internet. Scammers can look at an agency’s website and find regular vendors with big payments or contracts that have not been paid yet. Sometimes being transparent can have a negative effect and this is an example.
If you think this type of fraud won’t happen at your agency, you are wrong. It can happen at any agency…even agencies with strong internal controls. Now is the time to assess the procedures your team has in place to prevent this from happening to you.
To prevent accounts payable fraud, it is essential to have strong internal controls in place. Here are the top three internal controls that can help prevent accounts payable fraud:
- Verification of vendor information changes: Implement a process to verify any changes to vendor information, such as changes to addresses or bank information. This can include contacting the vendor directly using previously established contact information to confirm the change. Also consider requesting a payment detail from the vendor to compare against your payment detail to confirm they are from the vendor. This reduces the risk of fraud from external parties by confirming that a bad actor is not impersonating a vendor.
- Segregation of duties: Ensure that there is a separation of duties between the person responsible for making changes to vendor information and the person responsible for making payments. This reduces the risk of a single person being able to commit fraud internally.
- Regular review and reconciliation: Conduct regular reviews and reconciliations of vendor information and payment records to identify any discrepancies or unusual activity. This can help to detect and prevent fraud before it results in significant losses.
By implementing these internal controls, local governments can reduce their risk of falling victim to accounts payable fraud and protect their finances from bad actors.
For more information, check out Ryan Domino’s article for ways to protect your organization.
