SAP FCM 3-Layer Fraud Shield – A Powerful Tool for Forensic Experts to Catch Red Flags

Swati Balani

6 months ago

In an era where corporate fraud schemes are increasingly sophisticated, organizations need more than just annual audits to stay ahead. Fraudsters exploit silos between business units, subsidiaries, and even geographies. A transaction that looks harmless in one entity might reveal a red flag when seen in the context of the entire corporate group.

This is where SAP Financial Compliance Management (FCM) on SAP Business Technology Platform (BTP) steps in — delivering real-time monitoring, cross-entity analytics, and AI-driven detection to catch fraud before it bleeds value.

Fraud Happens in Layers — FCM Detects in 3-Layer Fraud Shield

SAP FCM works across entity-level, group-level, and SOX compliance.

Entity-Level Detection – spotting irregularities within a single company/subsidiary.
Group-Level Detection – identifying patterns that emerge only when data across all subsidiaries is connected and compared.
SOX Layer: Provides audit-proof evidence and strengthens external compliance.

FCM uniquely addresses both, thanks to its integration capabilities on SAP BTP and its rule-based + AI-driven approach.

How FCM Detects Fraud at the Entity Level

Within an individual subsidiary, FCM can integrate directly with SAP S/4HANA Finance (FI), Materials Management (MM), and Sales & Distribution (SD) modules to perform detailed checks:

Entity-Level Red Flag Examples

Ghost Vendor Payments
- Trigger: Payments just below approval limits.
- Check: Bank account matches employee record in HR.
- Impact: Stops disbursement before loss occurs.
Inflated Expense Claims
- Detects repeated expense reimbursements for the same invoice number.
Manual Journal Entry Abuse
- Flags end-of-period manual postings with unusually high amounts.
Vendor–Customer Collusion
- Matches suspicious vendor invoices with unusual customer discounts in the same period.

🔍 Detailed Example: Duplicate Vendor Payments Across Group

This is where fraud usually starts small, within a single company.

Trigger:
A vendor submits two invoices of $50,000 each to Subsidiary A within the same week. Both invoices have slightly different invoice numbers but the same amount and purchase order reference.
SAP FCM Pre-defined Control:
The Duplicate Invoice Control in FCM immediately picks this up. It automatically compares:
- Invoice number
- Vendor ID
- Payment amount
- Date ranges
Automation:
The system blocks the second invoice before payment execution and sends an alert to the Accounts Payable (AP) manager via workflow.
Forensic Expert Check:
The AP manager reviews vendor master data and finds the vendor’s bank account number matches an employee in HR.
→ Red Flag: This is a Ghost Vendor — a fake vendor created to siphon money.

✅ Impact: $500K fraudulent payment was stopped at the entity level.

How FCM Detects Fraud at the Group Level

The real power comes when all group entities are connected to FCM via SAP BTP’s integration services, creating a central compliance hub. This allows forensic experts to detect cross-company patterns invisible to local finance teams.

SAP Financial Compliance Management (FCM) on SAP BTP helps forensic experts by consolidating internal controls, risk monitoring, and compliance checks at the group level.

Instead of reviewing one entity at a time, forensic experts can:

Monitor intercompany transactions across subsidiaries.
Detect duplicate vendors or shared bank accounts across group entities.
Flag mismatched eliminations or manual top-side adjustments during group consolidation.
Spot hidden related-party transactions (RPTs) that subsidiaries fail to report.

Group-Level Red Flag Examples

Shell Company Collusion
- Trigger: New vendor in Subsidiary A and Subsidiary B, based in a high-risk country.
- Cross-check: SD billing to this vendor; AR balances reversed the next month.
- Outcome: Early detection of possible laundering.
Duplicate Bank Accounts Across Entities
- The same bank account is linked to multiple “different” vendors in separate subsidiaries.
Inflated Intercompany Revenue
- One entity books large intercompany sales, but the buyer doesn’t record a matching payable.
Unreported Related-Party Transactions (RPT)
- Intercompany Elimination Reports show unmatched transactions between subsidiaries.

🕵️ Example: Shell Company Detection with SAP FCM

📌 Scenario:

A global trading group with subsidiaries in Asia, Europe, and the Middle East is under review.

Trigger (Entity Level):
- Subsidiary X in Asia books repeated payments to a “new vendor” flagged by BIS as high-risk (registered in a tax haven).
- Individually, the payments look small and just under the approval threshold.
Group-Level Cross-Check (via SAP FCM):
- During group-level consolidation, SAP FCM compares vendor master data across all entities.
- It finds the same “vendor” receiving payments from 3 different subsidiaries—all routed to one offshore bank account.
- Variance analysis shows no matching deliveries, invoices, or inventory receipts linked to these payments.
Outcome:
- Forensic experts identify the “vendor” as a shell company, created to siphon group funds.
- The fraud is caught because FCM connects entity-level suspicious activity into a bigger group-wide pattern—something siloed ERP systems would have missed.

⚡ Why Group-Level FCM Works Here:

Entity books alone: Each subsidiary’s payments looked “normal” and below thresholds.
Group-level detection: Consolidation revealed that the same fake vendor was draining funds across multiple subsidiaries—classic shell company collusion.

✅ Takeaway:
SAP FCM provides forensic experts with a centralized fraud lens—catching shell companies by correlating payments, vendors, and risk signals across the entire group, not just one ledger.

How FCM Works – Detection Workflow

Step 1 – Data Integration

Connect SAP and non-SAP systems from all entities.
Pull master data, financial transactions, and compliance logs into a single view.

Step 2 – Real-Time Rule Checks

Predefined and custom rules detect anomalies in AP, AR, GL, and master data.

Step 3 – Cross-Entity Pattern Matching

AI models analyze trends across entities to find complex schemes (e.g., multi-step laundering).

Step 4 – Alert & Case Management

Automatic alerts sent to forensic teams.
Integrated investigation tracking with audit trails for legal follow-up.

Benefits for Forensic Experts

Faster Detection: Catch fraud within days instead of after annual audits.
Higher Accuracy: Combine transactional data with master data for richer context.
Cross-Border Insights: Uncover patterns spread across multiple subsidiaries.
Audit-Ready Trails: Every detection is logged for regulatory compliance.
Adaptable AI Models: Continuously learns from new fraud schemes.

Real-World Scenario

Imagine a global manufacturing group with 10 subsidiaries. Subsidiary A approves a new supplier for machinery parts. Weeks later, Subsidiary C also makes purchases from this supplier. FCM detects:

Supplier’s bank account is based in a sanctioned jurisdiction.
Invoices are followed by credit notes from Subsidiary A.
No actual goods were received by either entity.

Without group-level monitoring, these red flags might have stayed invisible.

🧾 What is SOX?

The Sarbanes–Oxley Act (SOX) of 2002 is a U.S. federal law passed after corporate scandals like Enron, Tyco, and WorldCom, where financial fraud led to massive investor losses.

The law’s goal is to:

Protect investors from fraudulent accounting.
Improve accuracy and reliability of corporate disclosures.
Make CEOs & CFOs personally accountable for financial reporting.

🔑 Key SOX Sections Relevant to Forensic Experts & Finance

Section 302: Corporate Responsibility for Financial Reports
- CEOs & CFOs must personally certify that reports are accurate.
- They must confirm internal controls are in place and effective.
Section 404: Management Assessment of Internal Controls
- Companies must document and test internal financial controls.
- External auditors must verify effectiveness of controls.
Section 409: Real-Time Issuer Disclosures
- Companies must disclose material changes in financial condition quickly.

📌 For forensic experts, 302 & 404 are the most critical — because weak internal controls create room for fraud.

🔍 How SAP FCM Helps with SOX Compliance

SAP Financial Compliance Management (FCM) is designed to automate internal control management, risk monitoring, and compliance reporting. Here’s how it maps to SOX requirements:

1. Automated Internal Controls

FCM comes with predefined control libraries (SOX-ready templates) such as:
- Segregation of Duties (SoD)
- Duplicate invoice checks
- Vendor-bank account monitoring
- Manual journal entry approval

👉 These controls ensure no single person can manipulate both recording and approval steps — reducing fraud risk.

2. Centralized Risk & Control Monitoring (Group + Entity)

SOX requires documented control evidence at both entity and consolidated levels.
SAP FCM provides dashboards where forensic experts can see:
- Which entities passed or failed specific controls.
- Exceptions flagged for deeper investigation.
- Audit trails of every control execution.

👉 Helps in real-time monitoring across group companies — not just one entity.

3. Audit-Ready Evidence & Documentation

SOX auditors demand proof that controls are designed and effective.
SAP FCM automatically:
- Stores test results.
- Logs approvals, rejections, and overrides.
- Provides workflows showing who did what and when.

👉 Instead of forensic experts chasing evidence manually, SAP provides a digital audit trail.

4. Continuous Compliance (No Surprises at Year-End)

Traditional SOX testing is periodic (quarterly/annual). Fraud can happen in between.
FCM enables continuous monitoring:
- Every vendor payment, journal entry, or intercompany transaction can be checked in real-time.
- Forensic experts get alerts instantly — not months later.

👉 This reduces the “fraud window” where issues go unnoticed.

5. SOX Certification Support

At year-end, CFO/CEO must sign off on Section 302/404 certifications.
SAP FCM generates certification packages showing:
- Which controls ran successfully.
- Which controls failed & corrective action taken.
- Evidence trail for auditors/regulators.

👉 Helps top management confidently sign SOX certifications without fear of penalties.

💡 How FCM Helps in SOX Fraud Scenario

Scenario: A fraudster tries to bypass controls by submitting manual journal entries late at quarter close to inflate revenue.

Without SAP FCM:
- Manual JEs could slip through without proper approvals.
- Later, auditors might catch it, but company faces SOX violation fines.
With SAP FCM:
- Predefined control “Manual Journal Entry Approval” blocks the entry until a senior approver signs off.
- The system logs approver’s ID, timestamp, and reason.
- Forensic experts see this in the risk dashboard instantly.

✅ Fraud is blocked, and auditors get clear evidence that controls are working → SOX compliance maintained.

🎯 Summary: Why SAP FCM is a SOX Game-Changer for Forensic Experts

Entity Level: Stops small fraud (ghost vendors, duplicate invoices).
Group Level: Identifies patterns across subsidiaries (shell companies, collusion).
SOX Layer: Provides the audit-proof evidence that regulators and auditors require.

👉 Forensic experts not only catch fraud early but also ensure the company stays compliant with SOX, avoiding fines, penalties, and reputational damage.

The Takeaway

Fraud detection is no longer about “checking the books” at year-end.
With SAP FCM on SAP BTP, forensic experts have a real-time radar — not just for each entity’s activity, but for the entire group’s financial heartbeat.

It’s not just compliance.
It’s corporate self-defense.

SAP BIS vs SAP FCM — Key Differences & Uses

Aspect	SAP BIS (Business Integrity Screening)	SAP FCM (Financial Compliance Management)
Primary Purpose	Detect suspicious business partners, transactions, and patterns in real time to prevent fraud, money laundering, and compliance breaches.	Enforce financial controls, monitor compliance with policies/regulations, and detect accounting-related irregularities.
Scope	Operational + Transactional risk screening (e.g., vendor/customer fraud, sanctions screening, AML).	Financial process compliance (e.g., AP, AR, GL, intercompany transactions, closing processes).
Best At	Screening business partners, sanction/PEP checks, watchlist integration, transaction scoring, AML alerts.	Continuous monitoring of financial processes, SOX compliance, fraud detection in accounting entries, related-party monitoring.
Data Sources	Primarily master data (vendors, customers, bank accounts) + transactional data for screening.	Primarily financial/operational transactions from ERP (SAP S/4HANA or others) + compliance controls configuration.
When to Use	When you need to stop bad actors before onboarding or flag high-risk transactions in real time.	When you need to ensure internal financial processes are clean, compliant, and manipulation-free.
Integration	Often runs during vendor/customer creation or transaction execution.	Runs on scheduled checks or continuous monitoring in finance processes.
Example Detection	– New vendor in high-risk country (sanctions hit)	Suspicious payment routing through layered bank accounts. \| – Ghost vendor payments just below approval limit. Unreported related-party transactions via unmatched intercompany entries. \|

How They Work Together

BIS catches the “who” and “where” risk (e.g., is this vendor/customer sanctioned, risky, fraudulent?).
FCM catches the “what” and “how” risk (e.g., are transactions being manipulated, controls bypassed?).

In fraud prevention, BIS is your border security, FCM is your internal audit radar.

✅ Best Practice:
For forensic accounting and compliance teams, use BIS for partner/transaction risk screening + FCM for financial process monitoring. Together, they close gaps that either tool alone might miss.

Decision Matrix: SAP BIS vs FCM vs Both for Fraud Detection

#	Fraud Scenario	BIS	FCM	Why
1	Ghost Vendor Payments (fictitious suppliers receiving payments)	✅	✅	BIS flags unusual payment patterns & vendor anomalies; FCM cross-checks vendor bank accounts against HR records and approval limits.
2	Shell Company Collusion (vendor from high-risk country with circular transactions)	✅	✅	BIS screens vendor against watchlists; FCM ties financial postings with master data to detect laundering loops.
3	Inflated Intercompany Revenue (fake sales between subsidiaries)	❌	✅	FCM’s consolidation & intercompany elimination reports flag unmatched transactions and top-side adjustments.
4	Round-Tripping (fake sales returning as capital inflows)	✅	✅	BIS detects unusual transaction loops; FCM’s consolidation analytics reveal mismatched reporting periods.
5	Procurement Kickbacks (collusion with suppliers)	✅	❌	BIS identifies irregular bidding patterns, unusual vendor win ratios.
6	Unapproved Related-Party Transactions (RPT)	❌	✅	FCM detects RPT via transfer pricing deviations, unmatched intercompany records, and consolidation review.
7	Split Payments to Avoid Approval Thresholds	✅	✅	BIS flags repeated sub-threshold payments; FCM checks payment approvals & workflow logs.
8	False Expense Claims	✅	❌	BIS uses behavioral and pattern analytics to identify repetitive inflated claims.
9	Off-Book Liabilities (hidden obligations in subsidiaries)	❌	✅	FCM consolidation reports reveal missing liabilities in one entity but present in counterparty books.
10	High-Risk Vendor Onboarding	✅	❌	BIS screens vendors at onboarding against PEP/sanctions lists & adverse media feeds.

Key Takeaways

BIS = Front-line screening & transactional anomaly detection (real-time, pattern-based, behavioral analytics).
FCM = Financial close, consolidation & compliance lens (group-level financial integrity, RPT detection, and reporting validation).
Both = Needed when fraud spans both transactional execution and financial reporting levels.

Read our blogs on corporate governance here.

Official SAP Reference

SAP Risk and Assurance Management (part of the FCM solution):
This SAP product enables the documentation and linkage of risks and internal controls, automates both preventive and detective controls, and supports testing and issue remediation across financial processes in both on-premise and cloud environments.
SAP

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