Could your most reliable vendor be slowly draining company funds? It’s not just a hypothetical scenario. With billing fraud costing businesses a median of $100,000 per case, according to the Association of Certified Fraud Examiners (ACFE), vendor fraud is both real and expensive. The good news? Early detection is possible. By understanding the most common red flags and building the right controls—especially with automated AP tools—finance teams can stay several steps ahead of fraud risk.
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Book Your DemoIn this blog, we’ll walk through what vendor fraud looks like today, why it happens, and what warning signs your AP team should never ignore.
Vendor fraud refers to deceptive tactics used by suppliers, employees, or third-party actors to misappropriate funds during the invoice and payment process. These schemes can involve fake vendors, overbilling, duplicate invoicing, or payments for goods and services that were never received.
In many cases, fraud is carried out by external vendors. But internal collusion is also common, where an employee inside the organization helps approve or overlook fraudulent transactions in exchange for kickbacks. The ACFE consistently ranks billing fraud among the most damaging types of occupational fraud, especially in industries with large vendor ecosystems and decentralized AP workflows.
Vendor fraud doesn’t usually occur due to a single failure—it thrives in environments where processes are manual, controls are inconsistent, or departments aren’t aligned. Below are the most common organizational weaknesses that allow fraud to slip through:
Despite the push toward digitization, many finance teams still rely on spreadsheets, paper invoices, and email-based approvals. These outdated systems make it far too easy for fraudulent invoices to blend in with legitimate ones, especially when no one has end-to-end visibility into invoice status or payment history.
For example, a fraudster might submit a duplicate invoice with slightly adjusted line items or dates. Without an automated matching system, these inconsistencies are hard to spot.
Fraud often starts during vendor creation. If your organization lacks a rigorous vendor vetting process, such as verifying tax IDs, checking physical addresses, or validating bank credentials, you risk onboarding shell companies built solely to exploit your payment system.
In many companies, procurement handles vendor selection, AP processes invoices, and finance manages audits. If those teams aren’t sharing data or coordinating workflows, it becomes difficult to connect the dots. A fraudulent vendor might bill just under the threshold that triggers AP review, or use inconsistent payment terms across departments. Without a centralized system or communication loop, patterns go unnoticed, and fraud continues undetected.
Not all vendor fraud originates outside your walls. The ACFE reports that around 40% of occupational fraud cases involve employee collusion. In AP, this often looks like an internal staff member approving inflated invoices from a vendor they’re personally connected to—whether through family, business interests, or off-the-books incentives. Because these invoices often appear “normal” on the surface, internal fraud can continue for months or years without triggering alerts—unless you have strong segregation of duties and audit trails in place.
In large enterprises, AP departments may process tens of thousands of invoices each month. In such high-volume environments, small anomalies often go unnoticed, especially when invoice approvals are rushed, inconsistent, or handled manually. Fraudsters count on volume to hide irregularities. They may start small: rounding up totals, inserting vague line items, or shifting invoice dates to bypass duplicate detection. Without automation or AI-driven validation, these minor discrepancies often slip through.
Vendor fraud rarely comes in just one form. From highly orchestrated schemes to subtle invoice manipulation, fraudsters adapt their tactics to exploit gaps in internal controls. Below are the most common types of vendor fraud your AP team should be aware of, along with real-world-style examples and how they impact your business.
One of the most dangerous forms of fraud starts with the creation of entirely fictitious suppliers. These shell vendors may have official-looking credentials, such as registered tax IDs, business addresses, or even forged bank letters—but they’re often controlled by internal employees or third parties with access to your vendor master file.
Impact: This kind of fraud can go undetected for years, quietly draining thousands—or millions—if multiple shell vendors are created under variations of the same entity.
Example: A finance employee sets up a vendor profile under a name that closely resembles a legitimate supplier, submits small invoices monthly, and approves payments through a co-worker with system access.
This scheme involves submitting the same invoice more than once, often with minor tweaks to bypass basic duplicate detection systems. Fraudsters may change the invoice number, adjust dates, or slightly alter amounts, knowing that manual AP reviews may not catch the pattern.
Impact: Even if individual losses seem small, over time, duplicate payments distort cash flow, erode vendor accountability, and create reconciliation challenges.
Example: A vendor submits three invoices for the same $9,800 charge, each dated a week apart and with different invoice IDs. If controls only flag identical invoice numbers, these get paid without question.
Inflation schemes involve vendors overbilling for products or services—either by increasing unit costs, billing for undelivered goods, or padding invoices with vague line items like “miscellaneous fees.”
Impact: Over time, unchecked inflation depletes budgets and compromises vendor performance evaluations, which can lead to poor decision-making around renewals or expansions.
Example: A supplier bills for 1,500 units when only 1,200 were delivered, relying on a busy AP department to miss the discrepancy. Invoices may even include charges for services never rendered.
Internal collusion is one of the hardest fraud types to detect, because it’s carried out by employees who know how to exploit the system. Often, an AP or procurement team member conspires with a vendor to approve inflated or fraudulent invoices in exchange for personal rewards.
Impact: Beyond financial loss, these schemes damage company culture, compromise internal integrity, and can trigger regulatory investigations if bribery or compliance violations are uncovered.
Example: A buyer consistently awards contracts to a preferred vendor who provides the employee with cash bonuses, luxury trips, or other incentives. The invoices are padded, but approvals go through without issue.
Despite the rise of digital payments, many organizations still issue checks, which creates a physical vulnerability. Tampering occurs when fraudsters intercept, alter, or forge checks to redirect funds.
Impact: These schemes disrupt cash flow and vendor trust, often leading to long, resource-draining investigations and strained supplier relationships.
Example: A printed check meant for a vendor is intercepted by an insider who changes the payee name and deposits it into a personal account. In some cases, fraudsters may even use chemical solutions to “wash” check data.
Now that we’ve explored the consequences of vendor fraud—from reputational damage to financial risk—let’s look more closely at the specific schemes that AP teams should be watching for.
Vendor fraud rarely announces itself—it hides in routine workflows, buried in minor discrepancies, and masked by urgency or lack of oversight. It’s not always a large, obvious scheme. More often, it’s a series of small manipulations that, when left unchecked, create real financial and reputational risk.
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Get Free AP Audit ChecklistHere are some of the most common indicators of vendor fraud that AP teams should watch for:
Inconsistent invoice values—like perfect round numbers ($5,000 instead of $5,123.78)—can signal fabricated charges. Fraudulent vendors often round off figures to avoid the scrutiny that comes with more precise calculations.
Submitting multiple low-value invoices just below approval thresholds is a common tactic. Known as “invoice splitting,” this allows fraudulent vendors to avoid triggering multi-level reviews while siphoning off funds over time.
Invoices lacking clear details—e.g., “consulting services” or “miscellaneous charges”—should always raise a red flag. Legitimate vendors are typically specific about what was delivered and when.
When newly onboarded suppliers push for same-day payment without standard documentation, it may be a tactic to bypass controls before red flags are raised. Fraudsters often rely on urgency to slip through weak vetting processes.
Look for mismatches in bank details, addresses, or tax IDs. If a vendor’s business name doesn’t match their banking info—or if they request payment to a new account via email—it’s a signal to pause and verify.
Fraud prevention isn’t about being suspicious of every invoice—it’s about designing a system that makes fraud detection proactive, not reactive. The following practices combine process design, automation, and employee enablement to build a fraud-resilient AP function.
Ensure that vendor onboarding, invoice approvals, and payment execution are owned by separate individuals or teams. When one person has access to the full workflow, fraud becomes exponentially easier to carry out.
Digital supplier onboarding platforms can verify key vendor credentials during setup—such as tax ID validation, legal business registration, OFAC/watchlist screening, and bank account ownership. This significantly reduces the risk of fictitious vendor profiles entering your system in the first place.
Surprise audits and quarterly vendor file cleanups help catch unusual trends—such as sudden changes in payment frequency, duplicate vendors, or outdated vendor data. Auditing also acts as a strong deterrent against internal collusion, especially when paired with clear accountability frameworks.
AP automation eliminates many of the manual steps fraudsters rely on. With built-in controls and rule-based routing, you ensure that:
This level of control helps finance and audit teams maintain oversight without slowing down operations.
Technology can only go so far without human awareness. Fraud prevention begins with your people. Provide quarterly training sessions that walk through real-world fraud examples and emerging tactics. Include interactive components like quizzes or “spot-the-fraud” exercises to keep teams engaged and vigilant.
HighRadius offers a comprehensive suite of AI-powered solutions designed to detect and prevent vendor fraud throughout the accounts payable (AP) process. By automating key workflows and leveraging intelligent anomaly detection, HighRadius enables finance teams to identify suspicious activities early, ensuring financial integrity and compliance.
HighRadius employs machine learning models to continuously analyze payment patterns and flag unusual activities, such as duplicate invoices or inflated amounts. This proactive approach allows for the early identification of potential fraud, reducing the risk of financial losses.
The platform streamlines supplier onboarding by automating data verification processes, including Know Your Customer (KYC) and Know Your Business (KYB) checks. This ensures that only legitimate suppliers are added to the system, minimizing the risk of fraudulent vendor creation.
HighRadius utilizes Agentic AI to autonomously process invoices, matching them with purchase orders and goods receipts. This intelligent matching reduces errors and prevents overpayments, safeguarding against fraudulent billing practices.
The system continuously monitors transactions for compliance with internal policies and external regulations. It generates real-time alerts for any discrepancies, enabling swift corrective actions and ensuring adherence to financial controls.
HighRadius automates the reconciliation of supplier statements, identifying discrepancies between supplier records and internal accounts. This automation enhances accuracy and reduces the manual effort required to detect billing errors or fraudulent activities.
If your organization is grappling with manual data entry, lost invoices, or slow capture workflows—or if you’re aiming to unlock scalable, touchless invoice processing—it’s time to explore HighRadius’s Agentic AI invoice capture solution.
Experience firsthand how these intelligent features can eliminate inefficiencies, accelerate your payment cycles, and deliver measurable ROI within months.
Vendor theft refers to fraudulent activities in which a supplier intentionally misleads an organization to obtain unauthorized payments. This often involves tactics like overbilling, charging for undelivered goods or services, or creating fake vendor profiles to divert funds.
Businesses processing large volumes of invoices, especially those with manual AP systems or decentralized finance operations, are at higher risk of vendor fraud. Organizations lacking vendor verification protocols, audit trails, or automated checks are particularly vulnerable.
The red flags of vendor fraud include invoices with vague descriptions, unusually rounded amounts, or repeated low-value charges that avoid review thresholds. Sudden changes in vendor bank details, urgent payment requests from new vendors, and duplicate invoices with slight variations also raise suspicion. When these patterns emerge repeatedly, they often signal deeper issues in the AP process.
AP automation strengthens fraud prevention by enforcing consistent approval workflows, verifying vendor data, and flagging anomalies in real-time. Automated systems detect duplicate invoices, cross-check vendor credentials, and apply multi-level authorization based on invoice value.
Invoice fraud occurs when a vendor or a colluding insider submits false or misleading invoices to receive unauthorized payments. This can involve inflating service costs, charging for products not delivered, or submitting the same invoice multiple times with small changes.
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