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Send  Share  RSS  Twitter  21 Jun 2011

ACCOUNTING: Duplicate Payments Cost Companies Up to 2% in Lost Revenue

 





Recent Gauteng Business News

One of the greatest financial leakages in businesses today is the risk of duplicate payments in an organisation, which can end up costing a company hundreds of thousands in lost revenues.

“It is up to a company’s board of directors to implement appropriate internal control processes in order to prevent loss of revenues,” says George Williams, director and head of Grant Thornton Johannesburg’s Business Risk Services. “An organisation’s governance of risk and its internal audit function is an integral part of the King III corporate governance requirements and implementing appropriate processes specifically to address duplicate payment issues is vital.”

Duplicate payments, which occur within a company’s accounts payable process, may not always be fraud related but could occur due to the breakdown of internal controls and billing systems within a business.


“It is estimated by the Institute of Internal Auditors that companies make duplicate payments at a rate of between 1 and 2% of all their payments made,” says Williams. “This may not appear significant but if a company processes R10 million in payments annually, this would account for between R100 000 and R200 000 of lost revenues.”

Standard internal audit reviews would identify common causes of duplicate payments as a matter of course, while implementing simple data interrogation tools would prevent further duplicates which drain the coffers.

“In some instances supplier details may be duplicated on the accounts payable system or perhaps there is a lack of coding standards for inputting supplier invoicing information which leads to the same supplier being paid twice for a single service,” adds Williams. “When creditor invoices are not paid on time, suppliers may also re-invoice and inadvertently receive a double payment from the accounts department.”

Williams adds that duplicate payments could merely be human error where a code is typed into the system incorrectly, and no doubt in some cases fraud can be the cause of lost revenues through this issue.

“Unscrupulous employees or suppliers taking advantage because they are aware of an organisation’s poor controls in the accounts department is a common cause of fraud we pick up in our internal audit reviews,” he adds.

Duplications in payments can occur when there is a small discrepancy in invoicing information, but where all other information remains the same, such as when the Rand amount is different but the supplier name, supplier reference number, and invoice numbers are the same.

“In some cases, we conclude that there is deliberate abuse of systems by officials for monetary gain. Weak control systems within the accounts department are also common reasons for duplicate payments,” Williams continues.

Appropriate internal audit processes such as data interrogation tools which are specifically programmed to identify duplicate payments could recognise suspicious processes within individual departments or across departments in a company. Overruns on contracts, ghost suppliers and even fronting practices could be revealed through data interrogation tools.

Any anomaly which the tool picks up is investigated and acted upon. All available evidence is subsequently compiled to give to the company officials and relevant law enforcement agencies. More importantly, Williams stresses that recovery of lost revenues is a difficult process and this needs to commence as soon as possible.

He also warns that people don’t realise the importance of conducting proper background reference checks when recruiting staff. The recruitment of honest employees protects a company from all kinds of underhand, fraudulent activities and strengthens the organisation’s culture of trust and integrity.

“Implementing an integrated data interrogation audit process within a business will help to reveal to the accounts department the key causes of duplications as well as identifying internal control weaknesses in the payments system so that a reoccurrence can proactively be prevented,” he concludes.


 
 
 
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