Fraud Prevention Tip: Match Your Purchase Orders Against Your Invoices Before Putting the Invoices in Your System

Let’s talk about Accounts Payable. We have a tendency to put certain processes on auto-pilot because it’s much easier that way, and accounts payable is one of those. It’s not because whoever is doing your payables isn’t paying attention – it’s because he or she is only one cog in the ordering wheel. She’s not counting incoming shipments and matching POs to packing slips at that point. She’s not the purchasing officer (in larger structures), so she’s just receiving and then paying invoices, which she likely presumes have already been accounted for. That’s not to say that there aren’t some processes in place to prevent this from being haphazard, but there is room for error and exploitation.

I recall a case in Jacksonville, Florida. The purchasing agent and the controller were working together on a little scheme. They worked for a company that was buying 100 railroad cars a month, each holding 20,000 gallons of oil. That’s 2 million gallons of oil annually, which is a pretty huge volume.

What the controller and purchasing agent figured out how to do was effectively double-invoice for one of these railroad cars filled with oil. They’d effectively divert a purchased car to one of their competitors willing to pay for a discounted car of oil. The company that ordered the car initially paid for the car in full when they received their invoice, and when this pair invoiced the competitor at a discounted rate, the competitor would split the cost of the invoice with them.

The people getting most ripped off in this case were not ones that the controller and purchasing agent worked for, but the companies they were unjustly invoicing.

This would have been caught much sooner had any of those companies been matching its delivery tickets and purchase orders before processing its invoices in its accounts payable system. Once an invoice is in the system it’s on auto-pilot, which is why you have to be sure that you’re checking all incoming shipments against purchase orders to make sure you’re paying for the right things.

That’s a good practice anyway, and most of the time you’re at worst just catching honest mistakes made by your vendors. Sometimes, though, you’ll find something like this and be really glad that you have a fraud control policy that entails checking purchase orders against incoming shipments and against invoices before putting them into your systems.

What’s your process for checking these things? Have you ever uncovered mistakes or worse?

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