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Understanding Procure to Pay
Fraud and Ways to Prevent it

Procure to Pay (P2P) also referred to as Purchase to Pay, is essential to managing an organization’s procurement and financial process. It encompasses the entire lifecycle of acquiring goods and services beginning with vendor selection and requisition requests to procurement and invoice payments. Procure to Pay is a complex process that requires integrating functions across procurement, finance, accounts, and payable systems.

Given the expansive nature of the Procure to Pay process, it is often difficult to identify fraudulent activities which can be committed by internal (employees), external (third-party vendors), or involving both parties. Procure to Pay (P2P) fraud tends to occur across three broad focus areas: Invoices, Payments, and Purchase Orders resulting in significant financial loss for the organization.

konaAI-P2P-Lifecycle

Common examples of Procure to Pay fraud:

  • Manipulating an invoice
  • Submitting fraudulent invoices
  • Duplication of payments
  • Payments made to fake vendors
  • Conflict of interest in vendor selection
  • Invoicing for fictious goods or services
  • Taking bribes in exchange for favorable contracts
  • Submitting false claims
  • Product substitution resulting in reduced product quality
According to the Association of Certified Fraud Examiners (ACFE) 2024 report to the nations, more than half of occupational frauds (committed by employee or third-party) occur due to lack of internal controls (32%) or an override of existing internal controls (19%). It is essential for an organization to use a multifaceted approach in detecting and preventing fraud from occurring.

Identifying red flags
Procure to Pay fraud does not occur as a stand-alone event and is often carried out several times unless proactively addressed by the organization. Setting up a process to identify red flags is the first step your organization can take towards preventing Procure to Pay fraud.

Some common red flags that occur in the Procure to Pay process:

  • Invoices being raised on weekends or holidays
  • High frequency of invoice modifications
  • Round dollar invoices
  • Payments being made to a vendor whose phone number or address match with an Employee
  • Payments made to vendors with invalid tax id, phone number or address
  • Purchase orders raised for different rates from same vendor
  • Multiple purchase orders issued to same vendor
  • Payments made before creation of purchase order
Steps to Prevent Fraud
While it is impossible to eliminate Procure to Pay fraud completely, it is quite possible to detect fraud and prevent its occurrence through a detailed layered approach.
  1. Implement strong internal controls – conduct due diligence of vendor selection and utilize a multi-person verification process to prevent one employee from overseeing P2P’s procurement, invoice approval, and payments process.
  2. Benefit from data analytics and risk scoring – data analytics and machine learning models can be trained to identify statistically similar transactions across Procure to Pay lifecycle while risk scoring will help identify anomalies in your invoices and payment data.
  3. Data centralization – most organizations utilize different systems to manage and maintain data (such as HR database, ERP systems, third party tools etc.), paving the way for easy manipulation or overriding internal controls. Centralize your data to enable cross verification of employee data with vendor data to prevent conflict of interest and streamline the Procure to Pay process.
  4. Invest in Continuous Monitoring – Seek out platforms like konaAI’s Vendor 360 that have API integration and continuously monitor vendor activity, detect anomalies proactively, and launch swift investigations and audits when needed.
  5. Encourage a culture of ethics and whistleblowing – According to ACFE, 43% of frauds were detected due to tips from employees (52%), vendors (21%) and customers (11%). Build a culture of trust in your organization that prevents retaliation from speaking out against fraud.
Fraud in the Procure to Pay process poses a severe threat not just to the organization’s finances but to its reputation and operational efficiency. However, it is a threat that can be managed efficiently with a culture of transparency, due diligence and monitoring.

Begin your journey to fighting fraud today! Talk to a konaAI expert to understand how you can enhance your organization’s compliance monitoring.

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