Organisations need to be vigilant in preventing fraud throughout the year and protecting their assets. Accounts Payable (AP) is crucial in these endeavours. Your team is the final barrier between the fraudster and their monetary goals. But things can be different in winter, particularly during the festive season.
This blog post explores effective ways to prevent winter fraud, focusing on internal and procurement fraud.
Does fraud increase during the holidays?
While the festive season brings much joy, it can also create opportunities for fraudsters to exploit. We asked fraud expert Robert Brooker why this is. He said: “Holiday season is always a fraudsters nirvana. They are fully aware accounts departments are rushing things through to clear their desks before having a week or two on leave to celebrate the festivities.”
Here are some reasons why fraud attempts may increase during the holidays:
Increased transaction volume.
The holiday season typically sees a surge in financial transactions. Fraudsters take advantage of the chaos. They create fake invoices or fictitious vendors and manipulate payment processes.
Many employees take time off during the holidays, leading to understaffed AP teams. This can result in reduced oversight and increased vulnerability to fraud.
Pressure to meet deadlines.
The year-end often comes with financial targets and deadlines. Employees might feel pressured to process large volume of payments quickly. However, that can lead to mistakes that fraudsters often exploit.
E-commerce and online shopping.
The growth of e-commerce during the holidays opens up new opportunities for fraud. That includes phishing scams, identity theft, and fraudulent online purchases.
Gift card scams.
Gift cards are popular holiday gifts. Fraudsters target employees with phishing emails to pose as company executives to request the purchase and submission of gift cards. This is a common form of fraud during the festive season.
To fight fraud during the holidays, businesses should remain vigilant. We recommend you apply the following fraud prevention measures.
What is an effective way to prevent fraud?
Fraud prevention is a critical component of financial risk management for any organisation. Doing this effectively requires a combination of strategies and precautions. Here are some key steps to consider:
Robust internal controls
Establishing strong internal controls is fundamental to preventing fraud. Accounts payable teams should implement duty segregation, ensuring that no one person has end-to-end control over any financial transactions. Regularly review and update these controls to adapt to evolving fraud tactics. Ensure there are contingencies in place when staff numbers are low so two people see and approve payments.
Mandatory holiday, job sharing and oversight.
Internal fraudsters often don’t take holiday, preferring to oversee their transactions alone. Therefore mandatory holidays and sharing tasks across the team is a good way to combat this. Having clear oversight for many team members can also be a good move. It ensures that many people can discover discrepancies in invoices and query them.
Employee training and awareness.
Educating employees about fraud risks and prevention measures is essential. Regular training sessions help employees recognise the warning signs of fraud. They’ll be able to spot unusual financial discrepancies, unauthorised payments, or suspicious vendor activities more easily.
Modern fraud detection and prevention tools can be invaluable. Software solutions analyse financial data to detect anomalies, flag suspicious transactions, and identify other red flags.
Verify the legitimacy of new suppliers and ensure you review your records regularly. During winter, there is often an influx of holiday-related purchases. These high volumes make it easier for fraudulent vendors to slip through the cracks. An example of this could be a new supplier for company gifts, cards or events. It pays to review your master supplier file often during winter for new suppliers and bank account changes. Performing stringent checks on new suppliers can also help avoid falling victim to scams.
Implementing invoice approval workflows.
Establish a thorough invoice approval process to ensure review and validation before payment. Automating this workflow can reduce the risk of human error and fraud.
Data encryption and secure payments.
Encrypt all financial transactions and make them through trusted and secure channels. Protect sensitive financial data to prevent data breaches and unauthorised access.
Regular audits and reconciliation.
Conduct periodic audits and reconciliations of financial statements. This helps in identifying discrepancies or inconsistencies that may indicate fraudulent activity.
The three basic focuses of preventing fraud:
To effectively combat fraud, it is essential to focus on three core aspects:
Early detection is crucial.
By implementing monitoring systems and reviewing financial records often, AP teams can identify fraud before it escalates.
Creating a strong deterrence is essential for preventing fraud.
Employees and potential fraudsters should be aware of your robust fraud prevention measures and the consequences of fraudulent activities.
In the event of fraud, a well-defined response plan is vital.
Quick and appropriate actions can mitigate potential damages and prevent further losses.
FISCAL: Assisting in fraud prevention
FISCAL Technologies provides tools and services that enhance your organisation’s fraud prevention capabilities. Our solutions use cutting-edge AI technology to help businesses discover fraud and react fast.
Final thoughts on preventing fraud in winter.
During winter we must remain proactive in our efforts to prevent fraud. By implementing robust internal controls, providing employee training, leveraging technology, and partnering with trusted organisations like FISCAL, businesses can reduce their vulnerability to fraud.
Robert Brooker gave his advice: “Please take five and ensure that you double check everything. Do not cut corners due to having a backload and trying to rush. Those five minutes will be worth it, otherwise you may find yourselves becoming the fraudsters next victim. Ensure you do not circumvent your policies, procedures or working practices.”
A combination of detection, deterrence, and an effective response plan helps organisations safeguard their finances and reputation. Stay vigilant, stay secure, and enjoy a fraud-free festive period.