It’s long been said that A/P is a cost center. But it certainly doesn’t have to cost this much!
Several recent examples in the news show what happens when A/P policies or procedures go off the rails. Some are gigantic, high-profile examples; others occurred on a much smaller, but still damaging, scale.
And while we’re sure you run a tight ship, missteps do happen.
Take a look at two recent instances where events in A/P situations got out of hand and how you can ensure you avoid a similar fate in your finance department.
Cautionary Tale No. 1: The VA scandal
Probably much of what you know about the current scandal at the Department of Veterans Affairs centers around the delays in care many veterans were subjected to. But did you know that the troubles extend into Finance, specifically Accounts Payable?
During fiscal years 2012 and 2013, it turns out the agency’s p-card holders made about 15,600 possibly unauthorized transactions. That’s according to a new report by the feds Office of Inspector General.
The price of those questionable transactions: approximately $85.6 million.
Of course it’s unlikely you’re working on that kind of scale in your own organization. But if you use a purchasing card or corporate credit card to streamline your purchasing process, you could be at risk for abuse.
So what went wrong? Check out three of the problems the report uncovered:
- There wasn’t enough info on exactly who’d been approved to make high-cost purchases
- The company didn’t do enough to verify cardholder purchasing authority limits by approvers and supervisors, and
- Purchasers didn’t receive adequate training on what’s considered to be unauthorized purchases.
In order to keep your own company out of a mess like this one:
- Set regular reviews with A/P and the heads of Purchasing to revisit users and authority limits.
- Spell out clearly what’s in and out of bounds for card purchases.
- Make training an ongoing effort, not just when cards get issued.
- Be sure that when employees leave the company, p-card permissions are revoked immediately, just like you do with keys, system access, etc.
Cautionary Tale No. 2: The Nicholson McLaren scam
An eight-figure abuse might be a lot to comprehend, but there are instances that are a lot more relatable … and probably happening a lot more frequently.
A recent case in point: an invoice fraud at British engine specialist Nicholson McLaren.
What went down: Invoices were submitted for racing car parts that were never delivered to customers. Long-term and trusted employee Lee Smith created a series of bogus emails, demanding payment for those parts. The only thing was, the remittance addresses were addresses for Smith’s family members!
All told the company was out 26,000 British pounds or $43,537 before the fraud was uncovered. Smith was sentenced to 21 months in prison for each of the four counts against him.
In order to keep your company out of a mess like this one:
- Understand that no one is beyond suspicion. This fraud went on so long because this employee was a long-term and trusted member of the team. But research consistently shows that it’s the folks with mid- to long tenures that perpetuate frauds most often. You certainly don’t want to create a culture of suspicion. But urge staffers never to dismiss the thought that a trusted employee could be doing something wrong.
- Rotate responsibilities. Had there been more of a system of checks and balances, someone at Nicholson McLaren would have likely caught this scam sooner. Summer vacation season is a great time to put new eyes on different tasks both to look for financial funny business, but to prevent burnout as well.