2. Liability is an obligation of an entity arising
from past transaction or event
Liability can be classified into current liabilities
and non-current liabilities
Account Payable – the money that an individual
or business MUST pay to its creditors within a
certain period of time – unpaid invoices, bills or
statements for goods or services rendered by
outside contractors, vendors or suppliers
3. • AP Fraud – fraud done by perpetrators in AP
balances
• Various ways (example)
▫ Duplication of payment
▫ Wrong mailing address for payments
▫ Collusion with other party to deceive the victims
▫ Fraudulent purchase of supplies and materials
and other general expenses
• Impact of AP Fraud – company may fall into
liquidation or being file for bankruptcy
4. Most Common in AP Fraud
For his/her own sake
Fraudster believes
in order to satisfy
that they have to
himself/herself
commit a fraud
lifestyles
due to certain
reasons
Perceived Opportunity
Weak or lack of internal control with the
business, company or organization
5. Detection
• Closely monitor the list of vendors registered with the company
• Close monitoring on balance sheet balances and account payable
and match it to the purchases
• Check the invoices submitted by the vendors on regular basis
• Keep check on the vendor activity
• Run a cross check between employees and vendors – family
connection
• Comparing numbering sequences of the supplier
• Look at the transparency of the supplier address
• Making employees aware that AP are subject to random checks
6. Red Flags
• Too many payments were made to the vendors –
payments made more frequent than stock come in
• Concealed liability - Improper or under reporting of
expenses and other liabilities
• Negative cash flow from operations or inability to
generate cash flows from operation while reporting
earnings growth
• Postpone the recording of liabilities in the fiscal year (12
months) and record it in the first month of the next fiscal
year
• Move liabilities to somewhere else
7. Prevention
• Establish clear and uniform accounting
procedures with no exception clauses
• Establishing a strong internal control system
▫ Maintain accurate and complete accounting
recording
▫ Monitor relationships among those people
involved in the transactions
• Establishing a written code of ethical standards
and its consequences of violating the rules
should be clear
8. Remediation
• Disciplinary action - take strict punishment for
any perpetrators and warning to possible
perpetrators
• Closely monitor the perpetrators to ensure that
the same things will not happen again
• Report the matter to the authority
