Staying Ahead of Fraud in Procurement

Fraudulent activity is a constant risk hanging over a company’s procurement process. Procurement brings together stakeholders from every corner of an organisation to request, approve, and manage spending. The complexity of the processes and the number of parties involved creates the perfect environment for everything from accidental oversights to outright fraud. At the heart of this issue is a widespread non-adherence to procurement policies, with over 50% of businesses admitting that a purchase is frequently requested after the spend has already been committed, 1 allowing unapproved and fraudulent spend to slip under the radar. In this article we will explore the pillars of fraud-free procurement and the growing role of AI in maintaining a compliant and controlled procurement process.

Three key features of a fraud-free procurement:

1. Transparency

At the heart of combating procurement fraud is the need for transparency and auditability. A centralised accounts payable (AP) system plays an important role in this by keeping a detailed real-time audit trail from requisition to payment. By mandating that all spending requests undergo an appropriate approval workflow within this system, businesses can effectively clamp down on unauthorised and potentially fraudulent expenditures.

2. Proactive Monitoring

AI-powered automation systems are equipped with the ability to learn from historical spending patterns and identify and flag any suspicious or anomalous activity. This proactive approach not only streamlines the detection of unusual activities but also significantly reduces the manual effort required in monitoring large quantities of transaction data. By closely monitoring patterns and pinpointing outliers, these systems ensure that anomalies don’t go unnoticed, effectively closing the gaps through which fraudulent transactions could otherwise slip.

3. Integrated Payments

Integrating payments with your AP system is another critical measure in maintaining a complete single source of truth. Keeping payments centralised and integrated with the other procurement processes allows for the real-time flagging of duplicate or irregular

payments, creating further barriers to fraudulent activity. This approach also ensures that payments are documented alongside previous procurement documents of purchase orders, credit notes and invoices, making audits straightforward.

AI’s Growing Role in Fraud Prevention

Artificial Intelligence has undeniable potential in fraud prevention, with exciting applications in the detection of potentially fraudulent activity using machine learning on historical data. This potential has been widely recognised, with the Financial Conduct Authority (FCA) having recently announced its plans to invest in AI initiatives aimed at fraud prevention.2

At Kloo, we’ve implemented AI across our AP solution, to strengthen financial control and fight unapproved and fraudulent spending. Procurement is managed centrally in Kloo from requisition to in-platform payment, creating a granular audit trail, which makes it easier than ever to identify anomalous or unapproved purchases. We have harnessed user-friendly and natural-language interfaces to improve compliance to proper procurement processes, by making it easier than ever to request, review and approve spend. Approvers are also provided with AI-generated insights, which flag budget compliance and potential duplicate spend, bringing both accidental and intentional overpayments to the organisation’s attention.

With this wave of AI-driven innovation, the future of fraud prevention in regulatory and in-house contexts isn’t just approaching; it’s already here, and it’s here to stay.

Looking Ahead

As we navigate the complexities of procurement and Accounts Payable, the potential of AI in automating and enhancing fraud prevention is undeniable. AI’s ability to interpret huge quantities of data in real-time allows for the immediate identification of irregularities that might otherwise go unnoticed. With AI’s capability to analyse, learn, and adapt, the future of fraud detection and prevention is not just automated; it’s intelligent, dynamic, and, most importantly, effective. The journey towards a fraud-resistant procurement environment is complex, but with AI, we are well-equipped to face the challenges head-on, ensuring the safeguarding of resources and the integrity of financial processes.

Want to learn more about how Kloo is using AI to prevent fraud? Download our ebook