How Accounts Payable Fraud Affects a Company

Any business or organization relies on the external environment to keep the company operating smoothly. These include the vendors that provide supplies and services and lenders to provide the financing. In other words any expense the company incurs is considered to be a liability, or negative cash flow for the business. When ever the company uses credit to start a business or to make improvements to an existing organization, these expenses have to be paid off. The job of the accounts payable department is to pay on these expenses each month. While this sounds easy, it can be harmful for the company if there is some type of accounting fraud going on. There are several ways a company can be affected by accounts payable fraud.

Accounts payable fraud costs the company money, especially if the fraud is not detected for a long time. The fraud might be just an individual who adds an extra few hours a week to his time card. This may not be as easily detected as an individual who tries to steal thousands of dollars from the organization in one shot. Still, whether it is one hundred dollars or millions, the company will not be able to stay within its budget when there is money missing. Then once the fraud is detected, it will cost the company more money to recover it. Taking the individual to court costs money and replacing him with increase the cost more to get the new person trained.

Accounts payable fraud also hurts the credit worthiness of the company. When money is missing, the company may not be able to pay on its debts in a timely fashion. When vendors do not get paid, they will stop doing business with the company. Therefore, the company will need to look for a different vendor. This may increase the company's expenses, especially if the new vendor charges more money. Unpaid bills also show the lenders that the company is a risk for future funding. The company may have to pay a higher interest rate.

Time is a valuable resource in operating a business. When accounts payable fraud is detected, it will take time to discover where the fraud occurred. This time has to be taken away from other important tasks that are needed to make the organization operate smoothly.

Accounts payable fraud can make the competing markets gain an advantage. When the company can not give consumers a product or service at the lowest cost possible, the customers will look at markets that offer a similar product or service.

If the accounts payable fraud is serious enough, the company may be forced to close its doors. Even if the perpetrator is caught, the losses may be severe enough to hurt the business permanently. Many companies had to file for bankruptcy because of this type of fraud.

Just like individuals, businesses and organizations have bills that need to be paid. When an invoice comes in, money goes out. Without being aware of it, the company may be paying money on an invoice that does not exist. Accounts payable fraud may be occurring right at this minute. This is something that is not to be taken lightly; if it is not detected immediately, the organization may be doomed to failure.