Accounts Payable Fraud

accounts payable fraud

These days, businesses don’t just have to worry about fraud originating from mysterious overseas destinations, matchstick con artists, or the old-timey burglar.

The next expensive fraud can be lurking within a company’s accounts payable department, with billing schemes, kickbacks, and expense account manipulations just a few of the ways businesses can lose money without even noticing. These schemes tie into broader issues of fraud, with businesses having lost as much as $7 billion in one recent year.

And in the digital age, problems are likely only getting quicker and worse. One study put half of all small businesses at risk of AP fraud.

That said, it doesn’t have to be this way.

Join us as we explore the most common methods of accounts payable fraud, some basic best practices to prevent it from happening, and how high-powered strategies like automation can help companies protect their capital.

The Most Frequent Methods of Accounts Payable Fraud

The Most Frequent Methods of Accounts Payable Fraud

Before we get into talking about solutions for accounts payable fraud, let’s look at some of the most frequently-seen methods it occurs.

Fake or Altered Checks

Perhaps the greatest AP fraud-related threat revolves around fake or altered checks. Each instance can be costly, around $150,000 according to the Association of Certified Fraud Examiners. And it can go on undetected for a long time, often as long as two years.

Some of this has to do with the sheer number of checks floating around these days, with a 2019 study by the United States Federal Reserve finding that 14.5 billion check payments for a total of $25.8 trillion were made in a recent year — and that was actually a slight decline from other years.

It’s safe to say the average business has more checks floating around than a single person can adequately monitor, creating ripe conditions for fraud.

Fake Billing

Even the smallest of companies purchase goods and services, from liability insurance to office space to printer ink. Over time, these sorts of purchases can become routine, with AP specialists approving the same payments for the same vendors each billing cycle. It’s like the corporate equivalent of having a gym membership or streaming service that somehow never gets cancelled.

Sometimes, no one really checks who the individual vendors are receiving $50 or $100 or whatever a month, so it’s not surprising that fake bills could crop up and go undetected, perhaps for years on end.

Of course, internal employees can also knowingly perpetrate billing schemes, through the use of shell companies, non-accomplice vendors, or unapproved personal purchases passed off as legitimate business expenses.

However it happens, fake billing can be costly, presenting a risk of $100,000 per instance to businesses, and hard to detect, going on an average of 24 months before being stopped according to ACFE.

Expense Account Malfeasance

Expense account padding works a bit like fake billing. When employees submit expense reports for reimbursement on things like mileage, meals on the company dime, and office supplies, they’re generally supposed to include receipts.

But these documents aren’t always closely checked and companies can easily wind up rubber stamping receipts that have no business getting approved. And around a quarter of businesses don’t even require receipts for reimbursement.

Automated Clearing House, or ACH Schemes

More and more employees are getting paid these days via direct deposit, with upwards of 80 percent of workers opting for it according to a recent study and more than a third of the workers who don’t get it saying their companies don’t offer it.

When companies want to arrange a direct deposit payment, it typically must go through an automated clearing house (or ACH, to explain the symbol on people’s bank statements.) While these pass-through entities are generally secure, there are ways to defraud them.

TechTarget notes a few methods, including when a fraudster gets access to “a commercial customer’s credentials, generates an ACH file in the originator’s name, and quickly withdraws funds before the victim discovers the fraud.”

Needless to say, ACH fraud is increasingly common with noting in 2019 that in the preceding year, 33 percent of organization had been subjected to ACH debit fraud and 20 percent had been subject to ACH credit fraud.


Sometimes, sadly, employees can also be bought off, with unscrupulous vendors, competitors, or others offering kickbacks — generally illicit cash payments or other perks — “intended as compensation for preferential treatment or any other type of improper services received,” according to Investopedia.

Basics for AP Fraud Prevention

Basics for AP Fraud Prevention

AP fraud schemes are numerous these days. Thankfully, so are some easy prevention strategies. While they alone might not be sufficient to keep a company totally protected, they’re a great start.

Here are some best practices for preventing accounts payable fraud.

Flush Out Rogue Employees, Train Good Ones

One of the worst AP fraud prevention strategies, perhaps, is to rely excessively on a single employee it isn’t happening. Accounts payable fraud happens in a variety of ways, though a common thread is a single individual or small group having a stranglehold on information and operating clandestinely.

Accordingly, urges companies to  “look out for employees who are unwilling to take annual leave or seem reluctant to let others get involved in their work” and also advises implementing “compulsory annual leave in high risk areas.” Having a zero tolerance policy when it comes to AP fraud with even the seeming best of employees matters, too.

Aside from getting potentially rogue employees out, it’s also important for companies to get more employees empowered and trained to spot the signs of AP fraud. Fraud awareness courses can be found in a variety of places online, including via LinkedIn Learning.

Bottom line, strength is in numbers when it comes to combatting AP fraud.

Know Your Vendors

As noted earlier, sometimes businesses just blindly go on paying invoices for years, not knowing why they must cut a check every month to certain places, or even who these places are, but still going through the motions.

For this reason, it’s wise to know which vendors do what for companies. Spreading awareness of this can be as simple as holding quick meetings with your accounts payable specialists and giving them brief written rundowns of all the vendors they cut checks to.

The proliferation of cloud software and customer relationship management tools like Salesforce also make it easier than ever to keep detailed notes on anyone the company is doing business. A quick check within the system before remitting payment can be made a part of standard operating procedure for any AP specialist.

Have Strong Controls With the Procure to Pay Process and All Types of Payment Types

Companies are setting themselves up for failure if they play fast and loose with procurement, allowing easy use of company credit and invoicing.

One way to counteract this is to use procure to pay process software, which delineates a series of steps that must be followed in order for purchases to go through. While the downsides are that it can increase bureaucracy and the amount of time it takes to procure goods and services, it’s a welcome alternative to fraud.

Do Unplanned Internal Audits — and Be Ready For Them With Digital Records

Even today, not enough businesses conduct internal audits. And the ones that do probably could be doing them better, with the 2020 Pulse of Internal Audit finding that 90 percent of internal audit plans didn’t include sustainability, while more than 50 percent lacked governance, culture, and third-party relationships, and nearly 33 percent didn’t include information technology or cybersecurity.

Thing is, it’s easy with software these days to both conduct and prepare for internal audits. Digital records compiled and easily accessible through the cloud make malfeasance more easily discoverable than in years past.

The Next Level: Using Automation to Combat AP Fraud

The Next Level: Using Automation to Combat AP Fraud

Using some basic best practices can help companies start to get a handle on potential accounts payable fraud schemes. But implementing a few safeguards and trainings might not be enough to ferret out all surreptitious efforts.

The next level of prevention is using automation to implement process improvements that can minimize the chances of fraud.  

Machine Learning Automation Software

The data revolution is upon businesses and so is the chance to root out accounts payable fraud via machine learning automation software.

A consultant explained to Business News Daily that, in the words of the site, “machine learning is typically a later-stage development, where machines are taking in data on their own and then analyzing it.”

This is where the software comes in, as companies don’t want to have employees painstakingly slogging through numbers to create the large sorts of data sets that can yield abnormalities and suspicious charges. Machine learning automation software can be a great tool to create sufficient sample sizes of data.

Automate Approval

Accounts payable approval can sometimes be a byzantine, inexact science, with inordinate amounts of time needed to determine who must sign off on which invoice. Needless to say, fraudulent actors can easily exploit this, bilking companies out of untold sums before they’re even aware.

Automation cuts the uncertainty and the time needed in the approval process, with invoices routing automatically on paths predetermined by AP supervisors, controllers, or other stakeholders.

Automate Matching

A key protection against accounts payable fraud involves matching key documents — be they receipts, invoices, or internal emails — that show work was agreed to. This task is important, but it’s also cumbersome enough that some companies might forgo even a two-way match of documents. Three-way matches done manually are almost unheard of.

Thankfully, automation can be used for accounts payable matching as well, with system integration allowing for seamless record pulling from a number of financial software providers.

The thing about artificial intelligence and automation is that it continues to regularly evolve. Thus, it’s important for companies to stay apprised of the latest trends, to ensure they’re continuing to do everything they can to stop potential accounts payable fraud right in its tracks.

Stampli can help you automate and guard against accounts payable fraud. Set up a call today.

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