How To Prevent Accounts Payable Frauds In 2025

While many finance leaders are focused on driving operational efficiency, a less visible—but potentially devastating—threat may already be inside your organization. Accounts payable (AP) fraud often begins subtly: a single fake vendor profile, a seemingly routine invoice, or a slight alteration in payment records. But over time, these small anomalies can snowball into significant financial and reputational damage.

In this article, we’ll explore the most common types of AP fraud, share real-world cases that have impacted enterprises, and outline actionable strategies CFOs and AP leaders can deploy to safeguard their operations.

What is Accounts Payable Fraud?

Accounts payable fraud refers to unauthorized manipulation of an organization’s payment processes — often carried out by internal employees, external actors, or through collusion between the two. Common schemes include:

• Submitting fake or inflated invoices
• Altering vendor master data
• Creating fictitious vendors
• Engaging in duplicate billing

According to the Association of Certified Fraud Examiners (ACFE), billing fraud is among the most costly and widespread forms of occupational fraud, with detection taking an average of 18 months. For large enterprises, where invoice volumes and vendor touchpoints scale rapidly, this risk multiplies.

Beyond the direct financial losses, AP fraud can erode stakeholder trust, trigger compliance violations, and complicate audits or regulatory reporting.

Types of Accounts Payable Fraud

Understanding the different types of AP fraud is essential for CFOs and controllers tasked with safeguarding enterprise capital. These frauds typically fall into two categories: internal (employee-driven) and external (cyber or third-party actors). Each brings distinct risks — and requires specific prevention strategies.

A. Internal AP frauds

Internal fraud is especially damaging because it leverages insider knowledge of systems and approval workflows. Even with duties segregated, insider threats can bypass safeguards if controls are weak or overly manual.

Common internal AP fraud schemes:

1. Fake vendors

Employees create shell vendor accounts and redirect payments to personal accounts. Without strict vendor onboarding protocols and periodic audits, these schemes can persist undetected.

2. Check tampering

Fraudsters intercept or alter checks — changing amounts or payees. This risk is elevated in finance teams relying on paper checks or decentralized payment processes. Digitized payment platforms and dual approvals can mitigate this.

3. Duplicate payments

Fraudsters re-submit invoices with small alterations (invoice number, vendor code). Without automated duplicate detection, the same expense gets paid twice — or more.

4. Inflated invoices via collusion

Employees and vendors may conspire to submit padded invoices. The surplus is later split, leaving audit trails hard to follow unless consistent invoice matching is enforced.

5. Misuse of company cards

Without real-time tracking or expense analytics, staff may use corporate cards for personal purchases disguised as business expenses. Travel and expense (T&E) automation tools help detect anomalies.

B. External AP frauds

External threats typically originate from cybercriminals, hackers, or fraud rings that exploit digital vulnerabilities or social engineering tactics. Their increasing sophistication demands automation and verification layers at every AP touchpoint.

Common external AP fraud types:

1. Business email compromise (BEC)

Fraudsters impersonate executives or vendors via spoofed email domains to request urgent fund transfers. Without robust multi-factor verification and role-based email protocols, these scams often succeed.

2. Vendor impersonation

Using phishing or domain spoofing, attackers pose as vendors to request changes in bank details. Funds are redirected, and recovery is nearly impossible once the transfer clears.

3. Fake invoices

Fraud rings send legitimate-looking invoices for services never rendered — exploiting manual processing gaps or lack of 3-way matching (PO-Invoice-GRN).

4. Collusion with insiders

External actors may recruit internal staff, offering kickbacks in exchange for payment approvals or vendor access. These hybrid schemes are among the hardest to detect, requiring anomaly detection tools and employee monitoring.

How to Spot Common AP Fraud Indicators Before They Escalate

In many enterprise finance teams, accounts payable fraud is cleverly disguised as routine business activity. It hides in vendor records, invoice discrepancies, or unexplained payment anomalies — often going undetected for months.

By identifying the early signals of fraud, CFOs and AP leaders can stop losses before they grow. Below are six of the most common red flags to monitor within your AP workflows:

1. Unrecognized or duplicate vendors

Fraud often begins with unauthorized vendors slipping into the system, either entirely fake or duplications with slight modifications. These profiles may have:

• Incomplete contact details
• Bank accounts registered to individuals or mismatched business names
• Recently added vendor records without proper vetting

2. Invoices that raise red flags

Fraudulent invoices can appear legitimate at a glance but contain subtle irregularities:

• Round-dollar amounts like $5,000 or $10,000, often used to avoid scrutiny
• Slightly altered invoice numbers (e.g., INV-1001 vs. INV-1001A)
• Vague service descriptions (“consulting fees”)
• No matching purchase order or goods receipt

These types of invoices are designed to blend in, especially in high-volume AP environments where manual reviews are infrequent.

3. Unverified changes in vendor bank details

When a vendor requests to update banking information — particularly via email — it should trigger enhanced verification. Fraudsters frequently impersonate suppliers to reroute payments to fraudulent accounts.

4. Overpayments and duplicate payments

Fraud can occur through:

• Paying the same invoice multiple times
• Paying more than the invoiced amount
• Approving payments for goods or services never delivered

In environments without automated invoice-matching systems or audit trails, these errors can persist for months.

5. Insufficient role separation

Allowing a single person to control invoice entry, approval, and payment drastically increases the risk of fraud. Implementing segregation of duties (SoD) — often supported by AP automation tools — is critical to building a defensible internal control system.

6. Unusual timing of transactions

Payments processed during off-hours — nights, weekends, or holidays — may bypass normal review channels. These time windows are frequently exploited by fraudsters to avoid oversight.

Anomalies in transaction timing should trigger exception reporting and review workflows in automated AP systems.

How to Detect and Prevent Accounts Payable Fraud

Accounts payable fraud can happen quietly — and cause serious financial damage before anyone notices. To stay protected, companies need more than just occasional checks. They need a clear, ongoing strategy that combines smart systems, clear processes, and trained people.

Here are six practical ways to prevent AP fraud and keep your payment operations secure:

1. Check and approve every vendor carefully

Fraud often starts with fake vendors added to your system. If no one checks them properly, these fake vendors can receive payments without anyone noticing.

Before adding a vendor, make sure the business is real. Check their legal details, bank information, and contact records. Look out for vendors with missing information or personal bank accounts. It’s also important to review vendor lists regularly and remove any suspicious or duplicate entries.

Doing this helps avoid fraud — and keeps your vendor records clean and reliable.

2. Make sure no one has too much control

One of the biggest risks in accounts payable is when a single person can enter invoices, approve them, and make payments. That much control makes fraud easy and hard to catch.

Separate these duties between different people. Use systems that only allow staff to do their specific tasks. For example, the person who approves a payment should not be the one who entered the invoice.

This approach builds accountability. If something goes wrong, you can easily track where it happened.

3. Use 3-way matching to check invoices

One of the best ways to stop fraud is by using 3-way matching. This means checking that the invoice matches the purchase order and the goods received.

If all three don’t match, the system should flag the issue before any money goes out. This prevents paying for items you didn’t order or never received. It also helps spot fake invoices.

Automating this step saves time and cuts down on human mistakes. It’s especially useful for companies that process a high number of invoices each month.

4. Run regular and surprise audits

Audits help you find errors or fraud in your accounts payable system. But planned audits are not enough on their own. Sometimes, fraud is hidden carefully and can only be found through surprise checks.

Mix regular reviews with random spot checks. These surprise audits keep people alert and less likely to take shortcuts. Also, give employees a safe way to report suspicious activity — this can help catch fraud early.

Audits show that the company takes fraud seriously, and they help you fix problems before they grow.

5. Train your team to spot the warning signs

People working in AP and procurement are often the first to see if something doesn’t look right. But they need to know what to look for.

Provide training that explains common scams like fake vendor emails, unusual invoice activity, or requests to change payment details. Show real examples and teach employees how to report something suspicious.

A well-informed team can stop fraud before it causes any harm.

6. Use AI tools to catch unusual activity

Fraud is getting smarter — and harder to catch with just manual checks. That’s why more companies are using AI and machine learning tools to help spot fraud.

These tools study your usual payment patterns. Then they flag anything strange — like a large invoice from a new vendor, or a payment request outside of business hours. They work around the clock and learn as they go.

This makes it easier to catch new types of fraud that your regular rules might miss. For many companies, using AI has led to fewer losses and faster fraud detection.

How HighRadius Helps Prevent AP Fraud Without Slowing Down Operations

Accounts payable fraud doesn’t always look like a risky breach — it often hides in invoice mismatches, unmonitored inboxes, and approval delays. HighRadius helps finance teams reduce risk and regain control by automating high-risk areas that are typically manual and error-prone.

From capturing invoices directly from emails to flagging mismatches through automated 3-way matching, HighRadius enables AP teams to work faster and more accurately, without sacrificing compliance or visibility. Tasks like inbox management, non-PO coding, and document reconciliation are streamlined into one secure, auditable system.

The result? Fewer exceptions, cleaner records, faster approvals, and a significant reduction in fraud risk.

If your AP team is still manually entering invoices, chasing down email approvals, or checking PO matches by hand, now is the time to modernize. HighRadius brings automation, accuracy, and audit-ready visibility into every step of the AP process, so fraud has nowhere to hide.

Ready to reduce AP fraud and eliminate risk from manual processes? Schedule a demo to see HighRadius in action.

FAQs on Accounts Payable Frauds

1. How to identify accounts payable fraud?

Accounts payable fraud can be identified through signs like duplicate invoices, fake or inactive vendors, unauthorized changes to payment details, or inconsistent payment patterns. AI tools and automated 3-way matching help flag these issues early, allowing finance teams to investigate and prevent losses.

2. How is accounts payable fraud calculated?

The cost of AP fraud is calculated by adding up the total value of fraudulent payments, internal investigation efforts, legal fees, recovery attempts, and any compliance penalties. Companies must also account for indirect costs like reputational damage and loss of trust from stakeholders and customers.

3. How can accounts payable fraud be prevented?

Preventing AP fraud requires a mix of process controls, role-based permissions, regular audits, employee awareness programs, and automation. Platforms like HighRadius help by enforcing workflows, validating payment details, and using AI to spot unusual activity before fraud can take place.

4. What is an example of accounts payable fraud?

One example of AP fraud is when an employee creates a fake vendor, submits false invoices, and pockets the payments. Another case involves scammers impersonating real vendors and requesting changes to bank account details, rerouting legitimate payments to their own accounts undetected.