As a business owner you likely have heard more than once that you should treat your vendor listing like Fort Knox – keep it secure and prevent access to all but authorized personnel. Typically this conversation is geared toward access to the vendor master, which lists all the important information for approved vendors. The Fort Knox comparison is apt; vendor master security is extremely important. Access should be limited and only granted to appropriate individuals.
Truly securing your vendor master means recognizing that threats come in many forms, including fraudulent vendors. Institute a vendor verification process to act as a fraud deterrent and ensure that funds are being spent with only approved vendors.
Before payments are processed, new vendors should be validated. This process should be completed by an individual independent of the person setting up the vendor, or should be double-checked by someone independent of the individual entering the new vendor data. (Remember that segregation of duties is a fraud prevention best practice!)
When verifying vendors, screen and document the following items:
- Valid Tax Identification Number. (Can be found on Form W-9.)
- Valid contact information. (Search websites, yellow pages, Dun & Bradstreet or the Secretary of State to check for valid addresses and phone numbers.)
It should set off warning bells if you can’t find the above information. Another situation that warrants extra scrutiny is when vendors have only a P.O. Box and no valid phone number.
Vendor verification is an important fraud prevention tactic, but it can be time consuming. If man power is an issue in your organization, consider spot checking vendors rather than checking all vendors. While not the same as a full scale verification process, even a limited review will act as a fraud deterrent.
Fraud Prevention Help
Worried that lax vendor verification may leave your organization open to fraud? Want to institute fraud deterrent processes, but don’t know where to start? Contact Rea & Associates. Our audit team will help you to put the processes that you need in place. Rea’s certified fraud examiners will help you create effective fraud prevention procedures.
- Fraud Prevention Through Risk Assessment
- How Do You Identify Potential Fraudsters?
- Where Does Fraud Happen?