Fraud and Fraud Detection: A Data Analytics Approach, + Website

CHAPTER 8 Billing Schemes

BILLING SCHEMES ARE PERPETRATED on the business through the accounts payable department. Businesses incur liabilities through the normal course of business that must be settled within a certain time period. Almost all expenditures made by the company are processed by accounts payable. The majority of the payments would be for trade payable and expense payable accounts. Trade payables are for the purchases of goods that are normally recorded as inventory and as part of the cost of goods sold. Expenses payable are those spent for purchases of goods or services that are normally expensed. Travel and entertainment expenses are also typically handled by accounts payable.

Payments flow through the system in the same manner, whether they are legitimate or fraudulent. Since so many transactions go through accounts payable and are the largest outlay for most organizations, you need to be vigilant to detect bogus payments. Not only is fraud of concern, but errors and inefficient payment processing are also issues, and all are costly to organizations just the same. Errors may be duplicate payments made or unnecessary charges paid for. Inefficient processing may include unnecessary payments for late payment interest or fees, discounts for earlier payment not taken, or individual payments of multiple invoices to the same provider during the same period.

There are a number of ways to run a billing scheme. The costliest to the organization are those where the corrupt ...