A model-based approach for preventing and detecting fraud in accounts payable: Australia and New Zealand case studies

Fraud is a matter of grave social and economic concern. For organisations, Accounts Payable (AP) fraud remains the most common type of fraud because it dominates most payment functions which are facing lots of challenges. Failure to adequately protect against fraud exposes an organisation to increased vulnerability in terms of fraud related risks. Traditional anti-fraud approaches (e.g. Strategic Fraud Detection Approach, red flag techniques, etc.) are widely accepted but demand very detailed knowledge about the fraud, IT security domain and the specific business environment.The main purpose of the research is to develop an improved approach for proactively preventing and detecting fraud in accounts payable. The approach is broadly characterized by: (1) Using IT techniques to facilitate the protection of accounts payable. (2) Providing an extensive set of red flags and IT control practices by conducting literature review and empirical study. (3) Modelling the fraud and information security knowledge on a very concrete and highly granular level.Led by the literature and based on the Strategic Fraud Detection Approach developed by Albrecht et al. in 2001 which was refined in 2003a, a model-based fraud prevention and detection approach has been proposed with two major reference models for AP: Fraud Risk Model and IT Control Model. The models provide an extensive set of fraud indicators together with corresponding control practices. Based on the existing audit projects sourced from the researcher's work company, relevant AP transactions data from nine different industries were analyzed to evaluate and discuss the applicability and practicability of the developed models. Finally, the issues relating to the design works (the approach and the models) have been justified and further refined.The approach advocates the use of models to improve efficiency in relation to risk assessment and the control implementation process. The approach also contributes new knowledge to the already existing knowledge base in terms of anti-fraud methodologies and techniques. Whilst at the same time, further providing benefit to the business world with practical solutions for preventing and detecting fraud in accounts payable