Duplicate invoice payments occur far more frequently than most organisations realise. On average, approximately 0.1% to 0.05% of invoices paid are typically duplicate payments—which for a medium-size organisation with annual costs of $100 million over a three year period, could represent a loss of $300,000.
While many duplicate invoice payments are recognised after high-integrity suppliers notice the mistake, many other duplicate payments require expensive recovery audits and/or intensive manual processes. Many are never identified or resolved. According to a 2012 KPMG poll, “64% of organizations still rely primarily on manual control testing to detect control violations such as duplicate invoice payments.”
What are the main causes of duplication?
Today, there are a myriad of automated payment and invoice delivery options, payment options, which increases complexity and the likelihood that problems can result from:
- Different options for receipt and payment of invoices, including outsourcing
- Mergers, acquisitions, or siloed business processes that allow professionals in multiple accounts payable (AP) departments to make payments without rigid controls in place that are designed to avoid duplicates
- Unethical employees or vendors taking advantage of increased opportunities to hide duplicate payments to enrich themselves at the organization’s expense
Most enterprise resource planning (ERP) applications provide the option to warn the payer if they attempt to enter an invoice with the same combination of company, vendor number, invoice number, invoice date, and dollar amount as a prior-paid invoice. Unfortunately, if there are slight variations in any of these five fields, most ERP applications are unable to identify duplicates and will allow invoices to be entered and paid.
There are many different possible causes for keying errors. In most cases, the errors are from unintentional data-entry mistakes made while entering hundreds of invoices per day—AP processors entering such a volume of invoices can easily suffer from loss of concentration or be overwhelmed by a lack of resources. The most common keying errors are:
- Misreading a number or letter (for example: 0 instead of O, or 5 instead of S)
- Transposing numbers (for example: 56 instead of 65)
- Omitting leading or trailing zeroes
In other cases, intentional errors are introduced when an AP processor bypasses controls established within the financial system by altering an invoice number by adding additional letters or numbers in order to push an invoice into the system.
Extinguishing purchase orders (POs) and receivers
Duplicate payments can also result from the widespread adoption of Automated Clearing House (ACH) payments, along with placing the responsibility for making payments outside of AP departments. For most companies, it’s imperative that AP processors follow the same practices and standards associated with normal payables processing; however, most of the time this is ignored, which can result in duplicate payments occurring.
The leading cause of duplicate payments is from duplicate vendors in an ERP system.
Even despite thorough manual efforts, duplicates in the vendor master file are likely to occur. For example, when a vendor invoice is entered in an ERP system, a duplicate invoice will occur if a different vendor code is selected. This new vendor code is in fact the same vendor with the same or possibly different bank details, which will inhibit any duplicate checking options.
Vendor duplicates can occur when AP processors take shortcuts when creating vendor entries. Duplicate vendors can also occur as a result of external activities, such as mergers, acquisitions, and inbound interfaces from legacy systems.
Manual check requests
Duplicate payments can also result from manual check creation. Most organisations do not have numbered forms; check processors usually generate an invoice number, which creates the possibility of duplicate invoice numbers.
Paying from multiple source documents
When two different source documents are submitted for a single payment, a duplicate payment inevitably almost always occurs. When this happens, one of the source documents for the same transaction is usually in a different form than the other source document, such as a statement or quotation.
Duplicate payments can also occur when duplicate invoices are sent via alternative methods, such as fax or email. These duplicate invoices are usually submitted as a reminder to the payer that the vendor has not paid yet.
Duplicate payments can also occur when a vendor doesn’t provide the appropriate purchase order number on an invoice. When this happens, entry of the invoice into the ERP system is typically delayed due to the time needed to research the correct purchase order number. However, after not receiving payment yet, the vendor might submit a copy of the same invoice—only this time with the purchase order number. In this situation, it’s possible that both invoices might be processed and paid.
Travel and expense reimbursements and invoices
Some employees who request reimbursement through an expense report (after paying with cash or a personal credit card), might also request reimbursement by submitting invoices for payment. This type of fraudulent activity is difficult to monitor manually and control since the dollar amounts are usually small.
Basic steps to reduce duplicate payments
Here are some good-practice management suggestions to adhere to:
- Review vendor master files on an ongoing basis.
- Limit manual check requests to only those circumstances when there is no true invoice. Check request forms can still be completed and submitted multiple times. End users should be coached to never submit the same check request twice.
- Establish a company-wide, standard policy for invoice numbering. This policy should establish definitive guidelines for entry of an invoice number when one already exists, as well as rules for capitalization and punctuation entry. If possible, you should enforce the policy within your financial system. The policy also needs to detail how an invoice number is generated when one does not exist.
- Adopt a vendor payment policy that requires an official invoice that includes an invoice number with reference to an order schedule or contract number.
- Implement a continuous-monitoring tool that checks for duplicate invoices prior to the processing of a check run.