Auditing Vendor Accounts for Fraud or at Least Some Cash Recovery

Fear Not the Software 

In the July/August 2007 column, we focused on prioritizing potential fraud opportunities with employees and vendors using qualitative and quantitative approaches. Here we’ll go one level deeper by using automated tools in uncovering associated fraud within vendor accounts. (Even if fraud isn’t detected, the procedures should identify some cash recovery for the organization.)

When considering automated tests for this area, ask the following questions: 

• Does the vendor provide actual goods/services to the company or is it a fraudulent billing scheme?
• Has the vendor returned mistaken overpayments to the company?
• Is the vendor charging the negotiated pricing and is it consistent with the marketplace?
• Are vendor inventories becoming obsolete?

Please note that this list focuses only on questions that can be answered using computerized tools because some questions are too subjective: “Are the vendor’s goods and services of good quality?” “Does the organization actually need the provided service?” Here we’ll try to answer the questions in the list using data analysis.