How to Detect Accounts Payable Fraud Before $125K Losses

Every year, businesses around the world lose billions of dollars, not because of declining sales or rising operating costs, but because of fraud happening unnoticed inside their own financial systems, particularly in the accounts payable department.

Accounts payable fraud has become a threat that can no longer be ignored. This vulnerability is exploited by various parties, from internal employees to vendors, and is often only discovered after losses have been going on for a long time.

This article will cover what accounts payable fraud is, how it works, the most common types, and effective steps to detect and prevent it, including the role of technology as the first line of defense.

What is accounts payable fraud?

Accounts payable fraud is a type of fraud that specifically targets the accounts payable (AP) department, which is the unit responsible for processing payments to suppliers, vendors, and other third parties.

This fraud can be carried out by various parties, both from inside the company such as employees, and from outside such as vendors or third parties. In many cases, fraudsters also work together to take advantage of gaps in the payment process. As digitalization and electronic transactions continue to grow, the risk from cybercriminals is also increasing.

Under the Association of Certified Fraud Examiners Fraud Tree, accounts payable fraud falls under the category of asset misappropriation, which is the misuse of company assets and the most common form of fraud in the workplace.

How does accounts payable fraud work?

Accounts payable fraud generally occurs through fraudulent disbursement, which means unauthorized spending of company funds. The most common forms include billing schemes, check tampering, and expense reimbursement fraud.

In practice, fraudsters take advantage of gaps in the payment process. For example, an employee can set up a fake company and then submit fake invoices for services that never actually existed. These schemes are often hard to detect, especially when they involve non-physical services like consulting.

In other cases, fraud happens through payment manipulation, such as employees stealing or forging checks. On the external side, vendors can also commit fraud by intentionally inflating bills or sending duplicate invoices for the same service.

Fraud can also start with a cyberattack like phishing. The fraudster pretends to be a vendor or trusted party and sends a fake invoice. When the invoice is opened or processed, the fraudster can gain access to the system or redirect payments to the wrong account.

Read more: How to Set Company Expense Policy to Prevent 21% Fraud Reimbursement Schemes

Types of accounts payable fraud

Accounts payable fraud can be grouped into two main categories based on where it comes from internal and external.

Internal AP Fraud

This type of fraud is carried out by employees who have access to the company’s financial systems. Because they are inside the organization, these schemes are often harder to detect.

• Kickback schemes: An employee works with a vendor to approve inflated invoices. In return, the employee receives personal benefits such as cash or gifts.
• Billing schemes: An employee creates a fake vendor and submits fake invoices. This often happens with non-physical service transactions that are harder to verify.
• Duplicate payments: The same invoice is processed twice on purpose, and one of the payments is redirected to a personal account.
• Check tampering: The fraudster manipulates company checks by intercepting them, changing payment details, or forging signatures.
• Pass-through schemes: An employee purchases goods or services for personal use but records them as business expenses.
• Conflict of interest: An employee has a hidden relationship with a vendor and approves transactions that benefit that party.
• Expense reimbursement fraud: Expense claims that are falsified, duplicated, or inflated beyond their actual value.

Read more: Payment Fraud Detection to Stop Revenue Leak

External AP Fraud

External fraud is carried out by outside parties targeting a company’s accounts payable system, often by taking advantage of weak processes or security gaps.

• Vendor fraud: A vendor inflates invoice amounts or bills for goods and services that were never provided.
• Invoice fraud: A fraudster sends fake invoices that look like they come from a legitimate vendor, complete with convincing details.
• Business Email Compromise (BEC): A cybercriminal pretends to be an executive or vendor and instructs the AP team to send payment to the wrong account.
• Ghost vendors: Fake vendors are created to send invoices for transactions that never happened.
• ACH fraud: A fraudster gains access to a company’s bank account and makes unauthorized transfers through electronic payment systems.
• Overbilling: Invoices are inflated by overcharging or adding hidden cost components.

Read more: 7 Vendor Fraud Schemes: How to Identify and Prevent It

Accounts payable fraud case example

One of the biggest accounts payable fraud cases happened when Google and Facebook lost more than $100 million due to a fake invoice scheme.

Evaldas Rimasauskas, a Lithuanian national, successfully defrauded both companies between 2013 and 2015.

The method he used was simple but highly effective. He set up a company with a name very similar to Quanta Computer, a legitimate vendor that actually worked with both Google and Facebook. Using that identity, he opened bank accounts in several European countries.

He then sent fake emails and invoices to the accounts payable teams at both companies. Because the vendor name looked valid and resembled a real partner, the invoices passed verification and payments were processed. The funds were then transferred to accounts controlled by the fraudster and quickly moved across multiple countries to cover the trail.

This case shows that accounts payable fraud does not always involve complex techniques. Even large companies with strong systems and resources can become victims if vendor and payment verification processes are not strict enough.

It also highlights that fraud often exploits the simplest gaps, which are trust in vendor identity and weaknesses in internal control processes.

Risks of accounts payable fraud for businesses

Accounts payable fraud can cause significant financial damage to a company, here are some of the main risks:

• Direct financial losses: According to the Association of Certified Fraud Examiners via Netsuite, organizations lose an average of 5% of annual revenue due to fraud. With a median loss of $125,000 per case, the impact can be very significant, especially for businesses without large financial reserves.
• Reputation damage: When fraud is exposed, trust from investors, business partners, and customers takes a hit. A reputation built over many years can collapse in a very short time.
• Operational disruption: Fraud investigations take up time and internal resources. Management attention that should be focused on business growth gets diverted, affecting daily operations.
• Legal and regulatory risks: If a company is found to have been negligent in applying internal controls, legal risks can arise, from shareholder lawsuits to regulatory sanctions.
• Exposure of sensitive data: In many cases, fraud also involves cyberattacks. Not only are funds stolen, but sensitive financial data can also be compromised and used for further attacks.

Read more: How to Detect Invoice Fraud and Prevent Losses up to £1M

How to detect accounts payable fraud

Early detection is key to limiting the impact of accounts payable fraud. The approach can start from basic controls and move toward more advanced analytical technology.

1. Regular audits and reviews

The most fundamental step is to conduct regular reviews of accounts payable records. Through this process, companies can identify early signs of fraud, such as:

• Missing or unrecorded checks
• Duplicate payments to the same vendor
• Vendors with suspicious addresses or bank accounts
• Discrepancies between purchase orders, delivery receipts, and invoices
• Transactions outside of working hours or on holidays

However, manual checks alone are often not enough to catch more complex fraud patterns. This is where a data-driven approach becomes necessary.

2. Pattern analysis with Benford’s Law

One technique that can be used is Benford’s Law, a statistical principle that describes the natural distribution of numbers in a dataset. Under normal conditions, numbers starting with the digit 1 appear about 30% of the time, while the digit 9 appears only about 5%.

When financial data deviates from this pattern, it can be a sign of manipulation. Numbers fabricated by fraudsters tend not to follow this natural distribution, making them easier to catch through this type of analysis.

3. Advanced data analytics

Advanced data analytics uses machine learning and AI technology to detect anomalies in accounts payable transactions in real-time.

Through this approach, the system can identify suspicious patterns such as invoice amounts that consistently fall just below authorization limits, payments to new accounts that have never been used before, and unusual spikes in transaction volume.

4. Segregation of duties

Internal controls also play an important role. Make sure no single individual controls the entire payment process, from receiving invoices to executing payments. By dividing responsibilities, the opportunity for fraud to occur can be significantly reduced.

5. Vendor verification

Any changes to vendor data, especially related to bank accounts, must go through an independent verification process. Ideally, confirmation should be done through a different communication channel from the one used when the change request was received.

How to prevent accounts payable fraud

Here are some key strategies that can be used to prevent accounts payable fraud in a company:

1. Apply strong internal controls

Segregation of duties, clear authorization limits, a digital audit trail, and regular reconciliation processes are the main foundation for preventing fraud from the start.

2. Conduct regular audits and vendor verification

Regular audits help identify anomalies before they grow into bigger losses. Every change to vendor data, including tax ID numbers, bank account numbers, and contact details, needs to be thoroughly verified.

3. Use automation technology

Automation-based accounts payable systems can detect duplicate invoices, data mismatches, and suspicious transaction patterns in real-time, making the monitoring process more accurate and consistent.

4. Use payment sanction screening

Screening against international sanctions lists helps ensure that the company does not make transactions with high-risk or legally prohibited parties.

5. Set clear rules and standard operating procedures

Any changes to payment details must be confirmed through an independent channel. New payment instructions should never be processed based solely on an email or message without additional verification.

6. Employee education and training

Trained employees are better able to recognize signs of fraud such as phishing emails, suspicious invoices, or unusual payment requests, so they can act faster to prevent risks.

7. Stay updated on the latest fraud trends

Fraud methods are constantly evolving, so companies need to regularly update their policies, technology, and training to keep their defense systems relevant and effective.

How Mekari Expense helps businesses prevent AP fraud

As business operations become more complex and fraud methods become more sophisticated, accounts payable fraud can no longer be treated as a secondary risk. The ability to detect and prevent fraud early is now a core need for every company.

As a spend management platform and integrated procurement solution in Indonesia, Mekari Expense helps businesses build a stronger and more structured control system. From the invoice verification process through to payment, the entire workflow is designed to minimize the gaps that fraudsters can exploit.

Through a combination of technology and automation, Mekari Expense reduces reliance on manual processes that are prone to errors. The AI-powered OCR feature enables automatic and accurate invoice data extraction, while the Fraud AI Checker analyzes transactions in real-time to detect potential risks before payments are processed.

Key features that support account payable fraud prevention include:

• AI-powered OCR: Automatically extracts invoice data and minimizes the risk of input manipulation.
• Automatic invoice input from vendor email: Invoices from vendor emails are automatically entered into the system as drafts without manual input, reducing the potential for duplication.
• Purchase Invoice (PO-based and non-PO): Invoice creation with controlled purchase order references, minimizing the risk of payments being made without a clear basis.
• Mekari Expense Balance: Real-time vendor payment scheduling and tracking with all transactions centralized in one platform.
• International Remittance: Overseas vendor payments made directly from the app with transparent real-time exchange rates, minimizing the risk of exchange rate manipulation.

With the Fraud AI Checker in Mekari Expense, every accounts payable transaction is not only processed, but also analyzed in real-time to identify potential accounts payable fraud.