A Connecticut man recently pleaded guilty to defrauding the owners of a Stamford ice rink, where he worked as general manager, of nearly a half-million dollars. Stamford police said the man had been stealing the money from the owners of the ice rink for 15 years.
The man was responsible for managing and overseeing the ice skating facility’s operations, and had a written contract with the owners to be paid commissions for securing agreements from third party vendors to place advertising at the rink. The man created and used an unincorporated entity controlled by him, to bill the owners for these commissions. He also stole money by claiming payments for purportedly maintaining and updating the rink’s website and additionally received unauthorized money in the form of excess salary payments, excess vacation pay, and payments for his cellphones between 1999 and 2014, the U.S. Attorney’s Office said.
During his employment, the man submitted to the owners of the rink numerous fraudulent invoices, primarily for services that they neither requested nor authorized, or for commissions that were either fraudulent or grossly inflated. As general manager of the ice rink, the man approved the payment of these invoices and directed his subordinates to issue him checks payable to the company he created. Prosecutors said the total loss from his illegal conduct totaled $490,468.81. The man was ordered to repay the money and was sentenced to 2 years in prison.
Fraud has been around since the beginning of time and today’s digital world is only making things more difficult. More than ever before, organizations are vulnerable to fraud both from within and outside. Unfortunately, Accounts Payable (“AP”) is often unknowingly in the middle of these unscrupulous activities.
So, what’s AP to do? Doing nothing is always an option, albeit a bad one, and hope (pray?) it never happens to your organization. If you’re a small enterprise, you might think these things only happen to larger organizations (see story above about an ice rink). If yours is a medium or larger enterprise you might (probably wrongfully) assume that fraud is someone else’s responsibility in another department.
The simple answer is that AP, along with the greater organization, needs to have a plan in place to help combat both internal and external fraud threats. You need to be aware of red flags and take steps to prevent them from occurring. Noted criminologist, Dr. Donald R. Cressey is credited with developing something called the ‘Fraud Triangle’ which according to Wikipedia, “describes the three factors that are present in every situation of fraud:
- Motive (or pressure) – the need for committing fraud (need for money, etc.);
- Rationalization – the mindset of the fraudster that justifies them to commit fraud; and
- Opportunity – the situation that enables fraud to occur (often when internal controls are weak or nonexistent).”
According to Dr. Cressey, the key to fraud deterrence is literally “breaking” this triangle by completely eliminating one of the three factors. Organizations can’t control the first two but they can significantly limit or prevent the third. ‘Opportunity’ can be limited by having a plan in place that includes a system of strong internal controls that act as a safety net to catch fraudulent activities and as a deterrent to fraud in the first place.
The good news is that today’s ePayables solutions (Corcentric, Esker, AvidXchange, Bottomline Technologies, MetaFile, Tipalti, Inspyrus, Tradeshift, Ariba, Basware) have extensive fraud control functionality and reporting analytics that can be leveraged to deter, detect, and prevent fraud. Another key element in fraud prevention needs to occur during the supplier activation process. Performing even basic tasks such as seeing if a new supplier has a website, uses a commercial address rather than a residential one, or has a main business phone number, can go a long way to detecting and preventing potential fraud. The solution providers above also provide excellent supplier onboarding controls that can provide much more extensive control to help to mitigate supplier risks as well.
The sad truth is that fraud is a potential risk for any organization, business unit, or department. However, organizations can leverage process and technology to help significantly lower the likelihood that you will become a victim. We’ll talk more in the future about how technology can be leveraged to detect, deter, and prevent fraud.
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