So your company is working hard to fulfill its financial responsibilities, you have settled an accounts payable process, and everything seems to be working just fine… until it doesn`t.

The reason?

Someone has made their way into your accounts payable operations and they are stealing money from you.

What a horrible scenario!

Horrible and unfortunately, quite common these days.

Accounts payable fraud is a serious risk that can cost your company not only money but also time, trust, and even its reputation.

So how can you protect yourself? What can you do if your business falls victim to a fraud scheme? 

That and more, we’ll be covered in this guide. 

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What’s Accounts Payable Fraud?

Let’s explain it this way, accounts payable fraud happens when someone manipulates your AP system to steal funds. Criminals can do this in a myriad of ways, from submitting fake invoices to altering payment details or even using someone on your team. 

The rapid advancement of technologies is definitely positive, however, for certain kinds of people it could mean an open gate to infiltrate your financial operations. 

More often than not you’ll find that the identity of your real suppliers has been stolen, making it difficult for you to spot the problem until it’s too late. 

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Types of Accounts Payable Fraud 

Fake invoices

Fraudsters may create entirely fake invoices or alter legitimate ones to change payment details. They could go as far as using the identity of your suppliers or using an entirely fictitious vendor, hoping that your AP department won’t catch the fraud. If your business doesn’t have an effective way of monitoring your processes, something like this could really go unnoticed.  

Duplicate payments

So you delivered the payment to one of your suppliers, how come you are making the same payment twice? Well, in the best scenario, it could be the result of an accident, a mistake.If that’s not the case, be prepared because you could be dealing with a criminal attempt to steal your money. These duplicate invoices usually come with slight variations, such as different invoice numbers or altered dates, to trick your team into processing multiple payments.

Vendor impersonation

Remember what we said about the identity of your vendors? Well, here’s the thing cybercriminals can impersonate your suppliers by hacking their email addresses. One day your team could receive a request to update their payment information, and if you accept, well…you might be sending the money to their accounts. Business email compromise (BEC) scams are a significant threat in this area.

Internal fraud

Sometimes, the threat comes from within your company. Think about it everyone in your accounts payable department has access to your systems, right? So if someone with dubious intentions wants to manipulate records to create fake vendors, inflate invoices, or authorize payments to themselves, it’s not that difficult.

Kickback schemes

Forget the strange name, and focus on the concept. In this scheme, an employee colludes with a supplier to approve inflated invoices in exchange for personal benefits. These under-the-table deals can be challenging to detect, especially if the employee in question has the authority to approve payments without oversight. Quite terrible, isn't it?

Phishing 

This one might seem pulled from the old school of cybercrime, but believe it or not it’s still relevant. People may use phishing emails to trick your staff into sharing login credentials or other sensitive information. Once they have access, they can infiltrate your AP system, alter vendor details, and initiate fraudulent payments.

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Warning Signs of AP Fraud

Now that you are familiar with types of fraud that can damage your accounts payable processes, let’s focus on the telltale signs that can help you to realize if your company is at risk of being the next victim. 

Unusual requests

Be cautious if a vendor suddenly asks for a change in banking details or requests an urgent payment. Should this happen, make sure to first get in touch with your vendor, talk to them and double-check the request.

Invoices with no details

This one is pretty easy to spot, you’ll see that the majority of fraudulent invoices have vague or missing descriptions of the goods or services provided. If an invoice doesn’t clearly match any purchase order or contract, it’s worth investigating.

High-value payments

But not just any payment, large payments made without the usual supporting documents, are a red flag. Review these transactions carefully.

Repeated small transactions

The best way to go unnoticed? Keep your crimes small, so If you see unusual patterns of repeated, low-value transactions, dig deeper, you might find a not-so-pleasant surprise. 

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Strategies to Prevent Accounts Payable Fraud

Perform a risk assessment 

Every single strategy borns out a well-carried-out analysis, take a moment to discover what are your current critical points, and what stages of your accounts payable process are the most vulnerable. What sort of risks could affect your operations?

Implement internal controls

Repeat this with us, if you control your systems, you can prevent fraud. Segregate duties so that no single person has control over the entire AP process. For example, one member of your staff can authorize payments, but another should handle invoice approval. If necessary consider rotating roles to make it harder for anyone to set up a long-term fraud scheme.

Use vendor verification protocols

How can you know that your supplier is actually your supplier? Sounds silly? Not too much, without a trusted verification method, you won’t be able to know if that strange last-minute email comes from your vendor or from a criminal.  Establish a standard procedure for vendor onboarding that includes background checks and regular audits.

Automate the AP process

Wait, but isn’t technology the culprit of the rise of fraudulent activities? No, the culprits are the people who use it to their benefit. Automating your accounts payable process is always a good idea as you can reduce the risk of human error and make it easier to detect any criminal activity. Procurement software can flag duplicate invoices, alert you to suspicious payment requests, and maintain a detailed audit record. Do you really want more reasons?

Audits

Frequent audits can help you identify inconsistencies and catch fraud early. These audits should review not just financial records but also the effectiveness of your internal controls. Consider bringing in external auditors periodically for a fresh perspective.

Train your team

Who is at the forefront of your accounts payable operations? Your accounts payable department right? Well, so why not train them to identify all the red flags surrounding fraud?  Constant training sessions can help everyone stay alert and understand the importance of following protocols.

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What to Do If You Fall Victim to AP Fraud

If you discover fraud, act quickly by contacting your bank to try to stop or reverse the payment, immediate action increases the chances of recovering the funds. Report the incident to law enforcement and relevant government agencies so they can investigate and hopefully track down the perpetrators, once you have done this, you will want to conduct an internal investigation to understand how the fraud occurred and identify weaknesses in your accounts payable process. Use the incident as a learning opportunity to strengthen your internal controls and add new security measures.

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