Defending Against Employee Fraud: Could your risky business practices make you a victim?

Fraud and Financial Crime

Ed Adshead Grant

Ed Adshead-Grant

Feb 25, 2019

Think about your employees -- where would you be without them? They’re the most important asset your business has. As a whole they work hard, take their jobs seriously and are the driving force behind your company’s success. You might even call some of them friends. But they’re also something of a risk when you consider the threat of employee fraud.

To be realistic, law of averages almost requires that at least one or two of your employees turns out to be more of a threat than an asset. That’s the harsh reality BMW-Mini faced when they discovered that long-time accountant Johannes Franken had siphoned £6 million from the company. A completely normal employee on the surface, Franken robed the company blind, right in plain sight, making 59 fraudulent transactions to fund a lavish lifestyle that included top-of-the-line BMWs, property in France and even a diving school in Mauritius.

No one ever saw it coming.

It was incomprehensible. How could a regular guy – a Dad with pictures of his family on his desk – commit bald-faced robbery with nothing more than the resources available to him as part of his job? It was easy. And it’s the kind of thing that happens all the time to companies just like yours.

Let’s look at the facts:

According to the Association of Certified Fraud Examiners (ACFE), there were 2,690 cases of occupational fraud in 2018, spanning 125 countries and costing more than $7 billion in total losses. It’s a harsh reality, one that’s even worse for organizations that are among the large percentage still making the majority of their payments via paper check.

Thankfully, it’s simple to take the preventative measures necessary to protect your organization: just stop making it so easy for people to steal from you! You’d never leave your wallet and cell phone on the seat of an unlocked car, so why conduct business in a way that’s just as risky?

Could one single employee bring your company to its knees?

I’m talking about eliminating one of the biggest root causes of internal fraud: manual invoice processing. It’s the single largest area of vulnerability in the AP process chain, making it easy for potential thieves by giving them an opportunity to tamper with data and divert funds.

That was the issue in the BMW-Mini case. Franken didn’t break into their wall safe at night and steal cash while wearing a black bandit mask. He didn’t even have to leave his desk! Because it was a paper-based payment system, he was able to easily make it look like he was paying suppliers when in reality he was diverting the money into his own account.

Sure, it’s easy to make judgments on a situation with 20/20 hindsight, but an AP automation system would have made Franken’s actions impossible. Not only would it have created a secure, end-to-end work flow that prohibited manual intervention, it would have also provided an additional layer of protection with automated exception detection that highlighted gaps in payment sequences, changes to accounts, duplicate payments to the same vendor, date anomalies, etc.

There are additional reasons beyond fraud protection that make AP automation just a common sense move as well. According to Strategic Treasurer’s2018 B2B Payments & WCM Strategies Survey Report,” nearly half of all organizations generate more than 10,000 payments each month. 18% generate more than a million. Trying to keep up with that demand using a manual, paper-based process would be utter insanity. It would be a tremendous expense of time, plus exceptionally error-prone because of the high volumes needing to be processed. Your likelihood of fraud would be driven even higher.

The simple fact is, AP Automation is your best chance of making sure your organization is protected from the threat of fraud (not to mention the additional benefits of increasing productivity and cash yield, plus improving accountability, compliance and reporting).

So embrace the fact that the time has come to eliminate the liability of paper from your business processes. It’s like the old adage says: “hope for the best, but prepare for the worst.” Learn from BMW-Mini’s mistakes and protect your organization from fraud by ditching those old school paper invoices and implementing an AP automation platform.

Ed Adshead Grant

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Ed Adshead-Grant

Ed Adshead-Grant is an experienced Fintech expert in the Global Payments and Cash Management industry, driving secure business payment solutions in ACH, Card, SWIFT, Faster Payments, Blockchain, Cyber Fraud & Risk Management and more.
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