Phishing Phriday Episode #20 – Accounts Receivable Fraud

In this insightful blog post, we delve into the critical topic of accounts receivable fraud. Managing accounts receivable effectively is essential for any business, and falling victim to fraud can have severe implications on your business’s sustainability, ability to meet obligations, and overall operations.

What is Accounts Receivable Fraud?

Accounts receivable fraud is typically less detectable than accounts payable fraud and is often perpetrated by employees. From a cybersecurity perspective, this type of fraud involves attackers impersonating or spoofing members of the accounts receivable team to intercept funds. They change payment details to redirect what customers or clients are sending to the business into their own accounts.

Real-World Example

Consider a scenario where a business owner discovered potential fraud during an employee’s holiday. The owner noticed an e-transfer request to a bank they did not use. After investigating, it was found that the employee had been providing legitimate services and invoices to clients, but when payments came in, the funds were deposited into the employee’s personal account, and the corresponding invoices were deleted. This manual and hands-on fraud resulted in significant financial losses for the business.

Common Types of Accounts Receivable Fraud

1. Skimming: Intercepting the accounts receivable payment before it enters the accounting system, such as depositing a check into a personal account.
2. Lapping: An employee pockets a payment from a customer and uses subsequent payments from other customers to cover the initial theft. This cycle continues until the fraud is either discovered or hidden.
3. Fraudulent Write-Offs: Employees credit a customer’s account for discounts, returns, or write-offs to conceal lapping or skimming frauds.

Detection and Prevention Strategies

Detecting and preventing accounts receivable fraud requires a combination of awareness, robust systems, and regular reviews:

1. Awareness: Educate your team about the different types of fraud and the importance of vigilance.
2. Verification Processes: Ensure that there are checks and balances in place. No single employee should handle all aspects of payments without oversight.
3. Automated Systems: Set up auto-deposit for e-transfers and specify a single email address for such transfers to reduce the risk of misdirection.

Signs of Potential Fraud

• Financial Struggles: Employees facing financial difficulties may be more tempted to commit fraud.
• Living Beyond Means: An employee living a lifestyle that far exceeds their salary should raise red flags. While there could be legitimate reasons, it’s important to understand any discrepancies.

Practical Tips

1. Regular Reviews and Audits: Regularly review accounts receivable reports, including invoices that were voided or discounts applied.
2. Monitor Employee Behavior: Be aware of any significant changes in an employee’s financial situation or lifestyle.
3. Automate Payments: Use auto-deposits for e-transfers to ensure payments go directly to the business account.

Conclusion

Accounts receivable fraud can have a devastating impact on businesses, but with the right awareness, processes, and technologies, it can be detected and prevented. Ensure your business has the proper checks and balances in place to protect against these threats and maintain the integrity of your financial operations. Stay vigilant, and prioritize the security of your accounts receivable processes.