Automating Accounts Payable to Prevent Fraud

With the average business office being staffed by three to four employees, managing a multitude of priorities can be daunting. With so much on their plates, business offices must also contend with the looming threat of fraud, which can significantly impact operations and financial stability. In a recent NBOA webinar hosted by Paymerang, John Zaudtke, vice president of sales, discussed how automation can play a crucial role in preventing fraud in accounts payable.

Zaudtke called attention to the following tactics which are most often used by fraudsters to manipulate school employees into making unauthorized payments or revealing sensitive information:

• Account takeover: A type of scam where a fraudster compromises an official business email and uses emails to move funds into illegitimate accounts.
• Vendor impersonation: A type of scam where a fraudster poses as a legitimate vendor or supplier to deceive a school into making payments for goods or services that were never provided. This can involve sending fake invoices, creating fake email addresses or websites that mimic the vendor's, or using other tactics to trick the school into transferring funds to the fraudster's account.
• Conversation hijacking: A type of scam where a fraudster intercepts or takes control of email or other electronic communications between two parties involved in a financial transaction. The fraudster then uses this access to impersonate one of the parties and manipulate the communication to redirect funds or obtain sensitive information.

While no automation provider can completely eliminate fraud, automation can significantly reduce the risk and free up time for AP staff to focus on other important tasks. Automated measures can help cover the following areas:

• Verifying payment details with trusted contacts by securely connecting with trusted contacts. For example, automated systems can send requests for confirmation of payment information directly to vendors or financial institutions, reducing the risk of fraudulent transactions.
• Conducting vendor research by automatically collecting and analyzing information from various sources. This can include verifying vendor credentials, checking for any red flags or past fraudulent activities associated with the vendor, and ensuring compliance with company policies and regulations.
• Enhancing payment processing by generating payment instructions, routing payments through secure channels and reconciling payments with invoices. Automated payment processing systems can also incorporate fraud detection algorithms to identify and prevent fraudulent transactions.
• Maintaining data compliance with the Payment Card Industry Data Security Standards by automating the collection, storage, and processing of payment card information.
• Ensuring internal controls, such as “positive pay,” which verifies the legitimacy of checks before they are processed. Positive pay involves submitting a list of issued checks to the bank, which then verifies the checks presented for payment against the list. Any discrepancies are flagged for further investigation.

While fraud remains a persistent threat for small business offices, automation can be a powerful tool in preventing fraud and improving overall efficiency. By implementing best practices and leveraging automation technologies, schools can better protect their finances and focus on their core mission of educating students.

NBOA members can watch the full webinar recording and download the slides through the NBOA webinar archive.