Accounts Payable Fraud: 7 Risks, Red Flags & Prevention Controls

Accounts payable is one of the points where company funds leave the business. When vendor data, invoices, approvals, and payment instructions are handled through disconnected processes, a fraudulent transaction can pass through before anyone notices.

AP fraud can come from employees, vendors, or external attackers. The common thread is a gap in the payment process that allows an unauthorized transaction to be created, approved, or paid.

What is accounts payable fraud?

Accounts payable fraud is fraud that exploits a company’s invoice, vendor, approval, or payment process to redirect company funds without authorization.

The perpetrator may be an employee, vendor, or external attacker. In some cases, multiple parties work together by exploiting weak vendor controls, approval gaps, or payment verification.

Under the Association of Certified Fraud Examiners (ACFE) Fraud Tree, many AP fraud schemes fall under asset misappropriation, where company assets are taken or misused without authorization.

Where Can Accounts Payable Fraud Happen?

AP fraud can enter the process at several control points. Looking at the process this way helps Finance identify where additional checks are needed.

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

Common Types of Accounts Payable Fraud

Fraud schemes differ in how they manipulate the AP process. Some are carried out internally, while others target the company from outside.

Fake or Ghost Vendors

A fraudulent vendor is created or impersonated so the company can pay invoices for goods or services that were never provided.

Fake, Duplicate, or Inflated Invoices

Fraudsters may submit invoices for nonexistent transactions, submit the same invoice more than once, or increase the amount beyond the agreed charge.

Kickbacks and Conflicts of Interest

An employee may approve a vendor in exchange for personal benefits or fail to disclose a relationship that affects purchasing and payment decisions.

Business Email Compromise and Payment Redirection

A fraudster impersonates a vendor or company executive and sends payment instructions that redirect money to a fraudulent account.

Expense Reimbursement Fraud

Employees may submit false, duplicated, or inflated expense claims through the company’s reimbursement process.

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

Accounts Payable Fraud Case Example

The Google and Facebook case shows how vendor impersonation can bypass payment processes at large companies. The fraudster created companies with names resembling legitimate vendors that worked with both companies, then sent emails and invoices that appeared legitimate to their accounts payable teams.

The case highlights why vendor verification and payment instruction checks need to rely on more than one source. A change to a vendor’s bank account, for example, should be confirmed through a separate channel before Finance processes the payment.

How to Detect and Prevent 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. Apply Controls Before Payment

AP controls work best when they are applied at the point where a transaction can still be stopped. Finance can combine process controls, verification, and transaction monitoring to reduce the chance of fraudulent payments reaching execution.

2. Verify Vendor Identity and Bank Changes

New vendors and changes to bank account details should go through independent verification. A request to change payment information should be confirmed through a separate communication channel before the new details are used.

3. Match Invoices With Supporting Documents

Compare invoices with purchase orders, contracts, and receiving records where applicable. Differences in vendor names, quantities, pricing, or payment details should be reviewed before approval.

4. Separate Approval and Payment Responsibilities

One person should not control the entire process from invoice entry through payment execution. Separating responsibilities reduces the opportunity for a single employee to create and approve a fraudulent transaction.

5. Monitor Duplicate and Unusual Transactions

Finance should flag duplicate invoices, unusual transaction values, new payment accounts, and transactions that repeatedly approach approval limits.

6. Keep a Clear Audit Trail

Every approval, change, and payment decision should leave a record that Finance can review later.

7. Automate Repetitive Checks

Automation can help Finance compare invoice data, identify duplicate transactions, enforce approval rules, and flag unusual patterns without relying entirely on manual review.

Read More: OCR Fraud Detection: Guide to Detect Business Fraud Early

Red Flags Finance Should Watch

Some warning signs appear before a payment is completed. Finance teams can use these signals as triggers for additional verification:

• Vendor bank details change shortly before a payment.
• The same invoice number or amount appears more than once.
• An invoice does not match the related purchase order or supporting document.
• A new vendor submits an unusually large invoice soon after registration.
• Transactions repeatedly fall just below approval thresholds.
• Payment instructions arrive through an unusual email address or communication channel.

How Mekari Expense Helps Reduce AP Fraud Risk

AP fraud often exploits disconnected processes. An invoice may arrive through email, vendor information may sit in a separate file, approval may happen in another channel, and payment records may only be reconciled afterward.

Mekari Expense brings several of these controls into one spend management platform, giving Finance a more centralized record of the transaction before and around payment.

Mekari Expense brings these controls into a more connected workflow, allowing Finance to capture invoice data, apply approval rules, review transaction details, and maintain records in one system.

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:

• Invoice capture with OCR: Extract invoice data automatically to reduce manual entry and input errors.
• Invoice intake from vendor email: Vendor invoices can enter the system as drafts instead of being retyped manually.
• PO-based invoice controls: Where a purchase order is used, invoices can be linked to the relevant purchasing record.
• Approval and policy controls: Set approval flows and spending rules that define who can authorize transactions.
• Fraud detection: Fraud AI Checker helps identify potential transaction risks for further review.

With the Fraud AI Checker in Mekari Expense, Finance can add AI-based transaction checks as another layer of review to identify potential fraud risks before payment is processed.