Different types of accounts payable fraud

Accounts payable fraud is a growing concern for organisations worldwide, particularly in today’s increasingly digital financial landscape. These fraudulent activities can lead to significant financial losses, reputational damage, and compromised stakeholder trust. Understanding the types of accounts payable fraud and implementing effective prevention measures is crucial for safeguarding your organisation.

In this article, we’ll delve into what accounts payable fraud is, explore its various types, and provide actionable strategies to prevent these fraudulent practices.

‍

What is accounts payable fraud?

Accounts payable fraud occurs when individuals exploit weaknesses in a company’s accounts payable (AP) processes to misappropriate funds. These schemes can be internal, involving employees, or external, involving third parties. With the right knowledge, businesses can reduce their exposure to these risks and implement stronger controls.

‍

Types of accounts payable fraud

Accounts payable fraud is categorised into two main types: internal AP fraud and external AP fraud. Below, we outline the most common schemes under each category.

Internal AP Fraud

Internal accounts payable fraud is perpetrated by employees within the organisation who misuse their access to financial systems and processes.  

Kickback schemes

Kickbacks involve employees colluding with vendors to approve inflated invoices or payments in exchange for personal gain, such as cash or other benefits.

Billing schemes

In billing schemes, employees create fictitious vendors and approve fake invoices for personal enrichment. This type of fraud is challenging to detect without thorough vendor verification processes.

Duplicate payments

Duplicate payments occur when an employee intentionally processes the same invoice twice, diverting one of the payments to their personal account.

Check tampering

This scheme involves employees intercepting company cheques, altering payment details, or forging signatures to redirect funds.

Pass-through schemes

Employees may purchase goods and services for personal use, submitting the invoices as legitimate business expenses.

Conflict of interest

When employees have undisclosed relationships with vendors, they may approve inflated invoices or payments, prioritising personal gain over organisational integrity.

Expense reimbursement fraud

In this scheme, employees submit falsified or duplicate expense claims, inflating their reimbursements.

External AP fraud

External techniques

These include hacking into AP systems or phishing attempts to gain unauthorised access to financial records.

Vendor fraud

Vendors may inflate invoices, charge for goods or services not rendered, or engage in other deceptive practices to extract funds from the organisation.

Invoice fraud

Fraudsters send fake invoices disguised as legitimate ones, often impersonating a known vendor or supplier.

Business email compromise (BEC)

BEC scams involve cybercriminals impersonating senior executives or trusted vendors, instructing the AP team to process unauthorised payments.

Overbilling

Fraudsters submit inflated invoices, either by exaggerating the cost of goods/services or adding hidden fees.

Ghost vendors

In ghost vendor schemes, external fraudsters create fictitious vendor accounts and submit invoices for non-existent goods or services.

ACH fraud

Automated Clearing House (ACH) fraud occurs when fraudsters gain access to a company’s bank accounts and execute unauthorised electronic fund transfers.

‍

Accounts Payable fraud prevention

Preventing accounts payable fraud requires a proactive and multi-faceted approach. Below are key strategies to reduce accounts payable fraud risks effectively.

‍

Implement robust internal controls

Strong internal controls are essential to deter and detect fraudulent activities:

‍

• Segregation of duties: Ensure that no single employee has control over the entire AP process.
• Approval hierarchies: Require multiple levels of approval for significant transactions.
• Regular audits: Conduct routine audits to identify discrepancies and potential fraud.

‍

Vendor verification processes

Establish thorough vetting procedures for all vendors, including:

‍

• Cross-checking vendor details against known databases.
• Verifying tax identification numbers.
• Conducting regular reviews of active vendor accounts.

‍

Utilise accounts payable automation

Automated invoice processing systems reduce the risk of human error and fraud by:

‍

• Identifying duplicate invoices automatically.
• Implementing flagging systems for unusual transactions.
• Enforcing pre-set payment limits and approval workflows.

‍

Employee training and awareness

Educate employees about accounts payable fraud risks, including:

• Recognising phishing attempts and suspicious invoices.
• Encouraging whistleblowing without fear of retaliation.

‍

Cybersecurity measures

Invest in robust cybersecurity protocols to protect financial data and systems:

• Use multifactor authentication for AP systems.
• Regularly update software to patch vulnerabilities.
• Monitor network activity for unauthorised access.

‍

Monitor key fraud indicators

Regularly review accounts payable data for red flags such as:

• Unusually high payments to a single vendor.
• Sequentially numbered invoices.
• Payments made outside normal business hours.

‍

FAQs

How does robust spend management protect against accounts-payable fraud?

An end-to-end spend-management programme gives finance leaders visibility over every invoice and payment touch-point, making common fraud schemes (duplicate payments, ghost vendors, inflated invoices) easier to spot. By centralising data and enforcing automated approval workflows, it closes the gaps internal or external actors typically exploit.

What red flags should I track in my spend-management dashboard to catch fraud early?

Watch for:

• Sudden spikes in spend with a single supplier.
  
  
• Sequential invoice numbers from “new” vendors.
  
  
• Payments processed outside normal business hours.
  
  
• Repeated rounding or identical amounts just below approval thresholds.
  These anomalies usually signal kickbacks, bogus vendors or overbilling schemes.
  
  

Which AI-powered spend-management features are most effective for CFOs?

Look for solutions that combine real-time anomaly detection, automated three-way matching (PO ↔ receipt ↔ invoice) and predictive analytics. Together they flag suspicious transactions instantly, verify authenticity before cash leaves the business, and forecast future spend patterns—turning fraud prevention into a proactive rather than reactive process.

‍

Conclusion

Accounts payable fraud poses a significant threat to businesses, but understanding its various forms and implementing effective prevention controls can significantly mitigate risks. Whether it’s internal schemes like expense reimbursement fraud or external threats like invoice scams, vigilance and robust systems are your best defences.

By adopting automated AP solutions, conducting regular audits, and fostering a culture of transparency, organisations can protect their financial assets and maintain trust with stakeholders. With the right strategies in place, businesses can not only reduce their exposure to fraud but also enhance overall operational efficiency.

The fight against accounts payable fraud is an ongoing process, but with consistent effort and vigilance, companies can safeguard their financial health and integrity.