Getting control over business expenditure

Accounts payable fraud costs UK organisations about £193bn a year and is a problem on the rise.

Failure to have an efficient accounts payable process that provides both visibility and control over transactions increases the risk of fraud, but also impacts the overall reliability of accounts and can leave companies in the dark over their expenditure.

The recent case of Patisserie Valerie illustrates the impact that poor accounts payable systems and processes can have on the reliability of accounts.

Similarly, the collapse of Carillion illustrates the impact poor practices can have on the wider supply chain.

And Holland and Barrett recently discovered the impact on their brand of poor payment practices. They showed that, although the accounts payable process may be hidden away from a customer’s eyes, it is vital for providing value and promoting a positive brand perception.

A need for control

 Controls are essential for reducing the risk of fraud and errors but implementing them can often slow the payables process.

This leaves finance departments with the challenge of balancing the need to pay suppliers on time, within agreed payment terms, to prevent disruption of the supply chain without losing control of budgets and expenditure.

One of the key controls is an authority register.

This identifies who is responsible for approving different levels of expenditure across each department or spending category.

To be effective, it needs to be visible and consistently applied. However, all too often, it is out of date and likely sitting on a shelf gathering dust.

Unapproved customs and practices can overcome the agreed processes and invoices can end up being approved by the wrong or even unauthorised staff. These problems sometimes lead to expensive consequences.

In one such case, a financial controller managed to steal more than £350,000 from her employer before eventually being caught and convicted for fraud.

In this case, the fraud was only uncovered when a Vice President of the company noticed an Invoice Approval Form for £6,256 from a service provider which seemed to have his signature on it – despite having signed it.

Unless the authority register has been integrated into the accounts payable process, there is a danger that it sits to one side and is too rigid to actually be used in practice.

It is not uncommon for the authority register to appear to be watertight in theory but in practice the complexity is overcome by staff taking short cuts to get things done as demonstrated by the case above.

If an invoice needs to be signed off by three people, why not just get the most senior person to do it? There may well be a good reason for this, but if it is not visible in developing the register and it was not really tested in practice, such issues may not be addressed.

Authority registers are exposed to changes in personnel, sickness and holiday breaks so keeping them up to date needs simple and quick management action.

In the absence of this, staff face letting invoices pile up awaiting approval or trying to make things happen. The former can cause delays and upset the supply chain, while the latter may undermine the register and business controls.

Can technology help get back control?

Visibility of the accounts payable process can quickly identify bottlenecks: a flexible authority register can make it easy for management to make permanent or temporary changes to the register.

However, this visibility is difficult to achieve without automating the process to at least some extent.

Automating the accounts payable process allows businesses to track the progress of any transactions, coupled with an audit trail, while ensuring the authority register is consistently applied and visible to the required people.

This consistency can have consequences if the process for amending the register is complex. So automation software that makes the process of modifications to the authority register simple and yet secure has an edge.

By taking some of the approval process away from overworked finance staff, businesses stand a better chance of not only getting invoices through the business quicker to pay suppliers on time – and keeping their reputations intact – but they can also reduce their risk of being caught out by employee fraud.