Accounts Payable (AP) fraud can sneak into your business like a thief in the night. Before you know it, fraudulent transactions can drain your resources, compromise your processes, and leave you wondering how you got here. Whether you’re a small business owner or part of a larger enterprise, understanding and catching AP fraud early can save you a lot of headaches and money. We’ll discuss critical red flags to look out for and show you how to prevent them from causing a massive financial leak. 

1. Duplicate Payments or Invoices

Duplicate invoices are one of the most common red flags for AP fraud. Fraudsters often exploit this by submitting a fake invoice that mirrors a legitimate one or re-submitting the same invoice more than once. In busy accounts payable departments, these duplications can slip through the cracks — and someone could be pocketing that “extra” payment.

How to Detect It:

• Search for duplicate invoice numbers, vendor names, amounts, and invoice dates.
• Implement automated tools to flag duplicate invoices before they are processed.
• Regularly run reports that identify payments issued twice for the same purpose.

2. Vendor Address Matches Employee Address

This is a classic sign of collusion. When an employee sets up a fake vendor to divert funds, they often use their own address or contact information to stay in control. A quick address check can uncover discrepancies that might point to fraud.

How to Detect It:

• Cross-check vendor addresses with employee addresses to detect potential overlaps.
• Review vendor registration processes to ensure that all vendor information is complete and verified.

3. Invoices Rounded to Even Amounts

Actual business expenses rarely round up perfectly every single time. Repeated payments that end in “.00” or have strangely consistent amounts could indicate someone is padding expenses or submitting false invoices.

How to Detect It:

• Review invoices for consistent rounding or identical amounts.
• Compare similar vendor invoices to identify abnormal pricing or quantities.

4. Vendors Without a History

A vendor that appears out of nowhere could be legitimate—or it could be a fake supplier set up by an employee to siphon off funds. If they have no history or visible track record, it’s time to dig deeper.

How to Detect It:

• All vendors must be verified before being added to the approved vendor list.
• Look for vendors without contracts, references, or documented dealings with your company.
• Investigate vendors with PO Box addresses and the need for a legitimate web presence.

5. Unusual Invoice Patterns

Look for sudden spikes in invoices from particular vendors, especially if the volume or amount doesn’t match their typical services. Fraudulent vendors may increase invoice frequency in hopes that it will fly under the radar of a busy AP department.

How to Detect It:

• Monitor for unusual invoicing patterns, such as a sudden surge in volume or value.
• Keep tabs on vendors that only bill during specific times, like the end of a fiscal period when financial scrutiny may be lower.
• Make use of historical spending reports to benchmark against vendor activity.

6. Invoices Without Supporting Documents

Any invoice showing up without the necessary paperwork — such as purchase orders, delivery receipts, or other documentation — is a major red flag. Missing documents could indicate an invoice being pushed through the system without proper verification.

How to Detect It:

• A purchase order and other verification documents are required for every payment.
• Establish clear policies that flag invoices submitted without the necessary paperwork.

7. Changes in Vendor Banking Information

Fraudsters love exploiting change. They know that AP teams are not always on high alert when a vendor updates their banking information, so they may provide fraudulent account details to divert payments into their own hands.

How to Detect It:

• Verify any vendor requests for changes in banking information by directly contacting the vendor.
• Implement a dual approval process for any changes to vendor payment details.

8. Multiple Vendors Sharing the Same Bank Account

If multiple vendors are using the same bank account, it’s worth investigating. This could indicate someone laundering funds or setting up fake vendor accounts to collect payments more efficiently.

How to Detect It:

• Regularly review vendor payment details for overlap.
• Run reports to detect shared bank accounts across your vendor list.
• Investigate vendors that lack legitimate differentiation from others.

9. Invoices for Goods or Services Not Received

Paying for goods or services that never arrive is a straightforward form of AP fraud. Fake vendors may submit invoices for non-existent goods, or employees may collude to approve payments for items that were never delivered.

How to Detect It:

• Regularly reconcile accounts payable with inventory records and project milestones.
• Ensure a formal process for acknowledging and confirming receipt of goods or services before making payments.
• Conduct random audits to verify that invoiced items were indeed delivered.

10. Vendor Information Changes Without Proper Authorization

If vendor names, addresses, or banking information are altered without going through the correct processes, it’s a red flag. Unauthorized changes could mean someone trying to intercept legitimate payments or reroute funds for fraud.

How to Detect It:

• Implement strict controls over who can modify vendor information.
• Establish an approval workflow to review and authorize changes to vendor details.

11. High Volume of “Rush” or “Urgent” Payment Requests

Fraudsters may take advantage of a sense of urgency to bypass internal controls. Frequent requests for expedited or rushed payments — especially from the same vendor or employee — can be a warning sign of fraudulent behavior.

How to Detect It:

• Investigate frequent rush payment requests, mainly if they come from the same vendors or involve the same employees.
• Additional oversight and approvals are required for payments flagged as urgent or expedited.
• Train your AP team to be wary of requests, emphasizing urgency as a reason to skip steps.

12. Invoices from Unfamiliar or Unverified Vendors

If you start seeing invoices from vendors your company hasn’t worked with before, it’s time to investigate. Fraudulent vendors are often created by bad actors within the organization or by external hackers who are aware of gaps in the accounts payable system.

How to Detect It:

• Set up a policy to verify all new vendors before processing payment.
• Request supporting documents, such as contracts or service agreements, before approving payments.
• Monitor for one-off vendors that never have a recurring relationship with your company.

Wrapping Up

Accounts Payable fraud can happen to any business, but you can significantly reduce the risk with a watchful eye and a robust prevention plan. Start by training your AP team to recognize these red flags and make fraud detection an integral part of your operations. Automated tools, regular audits, and vigilant monitoring are all steps that will keep your organization protected.

Remember, proactive prevention always trumps reactive solutions. The better your fraud detection and prevention strategies, the more you’ll safeguard your business from costly mistakes. If you have more questions about keeping your company safe, I’m always here to help.