B2B Payments

How Fraud Slips Through The Cracks Of Flashy ERP Systems


The larger the corporation, generally, the more money it has to invest in high-tech software, like ERP systems. And as C-suite executives might assume, the more expensive and sophisticated the software, the better it works.

But as corporate treasurers and CFOs strengthen their strategic roles while their firms expand, they don’t have the time to think of the basics — like, say, making sure their procurement and AP departments don’t pay an invoice twice. Their flashy ERP systems should take care of that, right?

Not necessarily, says Dan Zitting, chief product officer of financial software firm ACL. The company has just launched a set of preconfigured apps, together known as ACL Essentials, that helps complex organizations identify anomalies, discrepancies, errors and other money-wasting issues by analyzing corporate data.

It’s a bigger problem than CFOs might think, Zitting told PYMNTS, especially since they often assume those expensive and complex ERP systems have it covered.

“What happens is that, as the companies and their systems get bigger, there is a lot of complexity that often goes overlooked when implementing those sorts of controls in the ERP system,” the executive explained.

Plus, CFOs have more important things to worry about.

“With any sort of reasonably high-level executive, they’re focused on running a business,” Zitting said. “Not preventing duplicate invoice payments.”

Paying an invoice twice is hardly the only case where expensive, custom ERP systems can fall short on catching fraud and wasting money, he added. There are other instances that may go unchecked, like if an employee set up a fake vendor account so corporate payments to that supplier actually land in the employee’s bank account. Or there may be instances of an employee setting up a fake payroll account for another employee that doesn’t exist, again using the tactic to route payroll checks into a certain account.

The link between all of these issues is that they can all be identified using data analytics, Zitting said, whether it be by assessing invoice numbers, amounts and dates of service to identify duplicate invoice payments or by analyzing bank account numbers and addresses of payment destinations and payroll files.

There are even instances where an ERP system may intend to identify these anomalies, but as Zitting explained, fraud and error can slip through the cracks. For instance, if a supplier submitted an invoice for the same service twice with different invoice numbers, an ERP system that compares payments by invoice number wouldn’t catch that the company has paid the supplier twice for a single service.

“In a lot of cases, we see organizations are running on the assumption that the ERP system looks after various problems of fraud, waste, those sorts of things,” he said.

Zitting warned that mitigating these issues is even more difficult considering how many executives are confident in their own systems. But he said that it’s quite frequent that he’ll go into an organization and bring this attention to light, only to receive a look of shock.

“It will almost turn out to be disbelief,” he said, adding that many corporations will respond with, “What? We don’t have this kind of fraud or kind of waste, because I spent millions of dollars on this ERP system and that ERP vendor told me it prevents these things.”

It can be difficult for a treasurer or CFO to accept the fact that, indeed, these problems can and do occur. According to Zitting, he’s never been in a situation where he’s pitching this product to a firm and hasn’t found evidence of fraud or financial waste.

He agreed that, for these professionals, it can be a scary thing to realize.

“Of course, that’s part of the problem,” he said. “An awful lot of executives want to put their fingers in their ears, because nobody wants to have fraud going on in their company.”

But it happens, and it happens a lot, the CPO added. Luckily, data analytics tools can be a streamlined addition to ERP systems to identify these issues and nip them in the bud. “The reality is that, once a company gets to a certain size, it happens to all of them,” Zitting said of these money-wasting problems. “So, you might as well put in ways to identify it.”



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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