With Amazon recently falling victim to a major invoicing attack that allegedly cost it $19m and thousands of other organisations also being victims of similar attacks – albeit on a smaller scale – David Thorley, the Director of Customer Development at FISCAL Technologies believes that there now needs to be more emphasis from companies to find ways to stop losing valuable cash, especially in the current economic landscape.
One way this can be achieved is through forensic analysis within the Accounts Payable (AP) department. Many organisations rely on the AP department to help reduce the amount of cash lost, ensuring all payments are on time and most importantly not misplaced, but this is unfortunately not always the case. For example, errors in the financial department result in an average spend of £60m on investigations and administration costs, with misdirected payments and manual processes costing on average £560,000 for each organisation.
As is the case with all departments, nothing is perfect, but what are some of the risks in the AP department and how do these risks impact an organisation?
Missed opportunities decrease revenue
The capacity for AP resources to work on higher-value activities is reduced due to error and query resolution, this can range from anything from chasing up suppliers to looking for a misplaced document. As a result, those within the department are limited to what they can do due to these mundane, repetitive tasks.
Ultimately, lengthy pre or post-audit activity reduces the ability of the business to transact, limiting growth and reducing competitiveness, all of which can be avoided if the correct tools are in place.
Fines and penalties
In some geographies and industries, errors and adverse findings in statutory audits can lead to financial penalties. These penalties can be anywhere from a few thousand pounds to tens of millions. Just last year a leading consultancy was fined almost £20m for poor auditing. Payment Policy infringements can reduce an organisation’s ability to bid for certain types of contracts; critical infrastructures for example, which can have a significant impact on the way an organisation operates.
Payment errors and fraud directly affects the bottom line, which can result in a major impact in the financial reporting. Often financial reporting is skewed resulting in liquidity and profits being reduced. In public sector organisations, these lost funds reduce the capital available for frontline services, which can not only impact the quality of service provided but could also affect the reputation.
Heightened processing costs
Invoice exceptions prevent supplier invoices being processed automatically. AP staff spend an inordinate amount of time checking, correcting and managing invoice exceptions, which significantly increases processing costs and time. Given the current climate, this time and money could be put to better use, helping a company grow and expand.
Organisations making overpayments – paying duplicate or incorrect invoices – and fraud are a common problem. Together, these account for between 0.5% and 1.5% of the number of invoices processed, with the cost running into millions in many cases.
As a result, whenever an audit is conducted, the AP team spends time finding and providing information and documents. The more issues that are found, the more time audits take to identify and recover lost cash.
Losing valuable time
AP teams will frequently need to check supplier records during their normal transaction processing. Large, unmanaged MSF hold numerous duplicates and no-longer-required records that create more payment errors and hours spent investigating and resolving queries.
A negative reputation
Whether a private or non-profit organisation, fraud, errors, compliance breaches or poor financial results all heighten the risk of reputational damage for the organisation generally and the finance director in particular. The reputational damage caused by a high profile incident of fraud can be significant, affecting the business’ credibility and even the share price.
The shockwave from fraud can be more damaging than the financial loss. After a fraud is discovered, considerable time will be taken up investigating every new potential risk of fraud. Whatever the outcome of the investigation, this is an unwelcome distraction for the managers concerned. But, more importantly, the effect on morale and belief in the leadership’s capabilities throughout the organisation – not just the finance team – will be harmed.
Limiting the problem
All departments play a crucial role in helping an organisation succeed and grow. The AP department is responsible for ensuring payments are made properly, while identifying risks and resolving them. Given the current climate, the impact of AP performance is more important than ever for organisations across the world. To deal with such high pressure, it is imperative AP and P2P both work proactively to focus on retaining and protecting cash.
The AP department is no different in experiencing problems that most other departments experience, but the best way to overcome these challenges is to put in place a proactive process. This allows AP to make decisions on insight rather than hindsight, enabling them to do their job effectively and efficiently.