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

Every year, businesses across various industries lose billions of dollars due to invoice fraud cases that often go undetected until the damage has already been done. This problem is not merely a matter of negligence, but because invoice fraud schemes are becoming increasingly sophisticated and difficult to distinguish from normal transactions.

Invoice fraud can take many forms. Additionally, it ranges from fake invoices and fictitious vendors to unverified changes in payment details.

Companies need to understand how invoice fraud works. For this reason, they must build the right systems to prevent it from the start.

What is invoice fraud?

Invoice fraud is a fraudulent practice in which fraudsters create, manipulate, or use fake invoices to trick a business into making unauthorized payments whether to fake accounts, for goods or services that never existed, or in transaction amounts that differ from what was agreed upon.

This type of fraud takes many forms, from issuing fictitious invoices and duplicate invoices to overbilling and business email compromise (BEC), where fraudsters impersonate legitimate vendors or company executives.

How does invoice fraud work?

Here are some of the methods commonly used in invoice fraud:

• Account takeover: Fraudsters take over the email account of an employee  usually accounts payable staff through phishing or malware. Once inside, they can monitor conversations, access vendor data, and send fake invoices or account change instructions that appear to come from a legitimate internal party.
• Fake invoice: In this scheme, fraudsters create fake invoices by mimicking the visual elements and communication style of real vendors from logos and document formats to email writing styles. Because they closely resemble official documents, these invoices often pass initial review.
• Vendor impersonation: Fraudsters use a domain or email address that closely resembles a real vendor’s to deceive the finance team. Small differences, such as an added hyphen or a changed domain, often go unnoticed. For example, an email can appear almost identical to the actual vendor contact.
• Vendor fraud: Invoice fraud does not always come from external parties. It can also be committed by vendors who are genuinely working with the company. This may take the form of sending duplicate invoices or altering payment amounts in the hope that the discrepancy goes undetected in a busy approval process.
• Employee fraud: Occurs when internal employees abuse their access to accounting systems and vendor lists. They create or approve fake invoices, either independently or in collaboration with external parties.

Invoice fraud cases often occur in multiple stages. In practice, fraudsters may start by compromising a vendor’s account. They create a lookalike domain and send fake invoices with payment instructions that redirect funds to their own accounts.

They typically also add an element of urgency to pressure victims into paying immediately without additional verification.

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

The most common invoice fraud schemes

The following are the most frequently encountered schemes in invoice fraud cases:

1. Phishing attacks 

Fraudsters pose as suppliers via email, sending requests to change payment information or redirect a one-time payment to a different account. These emails typically use threats of fines, penalties, or contract termination to create pressure, pushing recipients to act without thinking carefully.

2. Duplicate invoices 

The same invoice is sent more than once  sometimes from the same vendor  in the hope that the duplication slips through administrative gaps and payment is made.

3. Inflated bill amounts 

Vendors inflate invoice amounts by billing for goods that were not ordered or raising prices without prior notice, hoping the difference goes unnoticed.

4. Non-delivery 

An invoice is sent and payment is requested before goods or services have actually been received. The perpetrator never intended to deliver anything.

5. Business email compromise (BEC) 

Fraudsters impersonate company executives or vendors via emails that appear authentic altering a single character in the real email address so it is nearly undetectable. These emails typically convey urgency and include payment instructions directing funds to a new account.

6. Unauthorized changes to payment details 

Fraudsters change bank account details on invoices to redirect payments to their own accounts. They may intercept emails between vendors and companies or use internal employees to modify account data before invoices are processed.

7. Internal employee collusion 

Employees collaborate with vendors or third parties to approve fake invoices and split the payment proceeds. This scheme is extremely difficult to detect because it involves individuals who have legitimate access to the system.

8. Expense fraud via invoicing 

Employees can manipulate expense-related invoices such as adding extra nights to a hotel invoice or altering transport receipt amounts before submitting for reimbursement.

Read more: Top 9 Fraud Detection Software to Reduce 50% Fraud Losses

Invoice fraud real cases

The following three real-world cases prove that this threat is real, premeditated, and can happen to organizations of any size:

1. The National Trust case in the United Kingdom 

In 2013, investigators found that former employee Roger Bryant had authorized hundreds of fake invoices from his two sons, who were posing as vendors. The scheme involved 148 invoices with no proof of legitimate work. It ran for years before an audit uncovered it, despite his attempts to conceal evidence and influence witnesses.

2. The gas station company case in Poland 

In this case, a gas station manager abused internal access to create fake VAT invoices, which were then sold to other companies for use in illegal tax claims. Although the main perpetrator was an individual, the company still had to bear financial consequences due to weaknesses in internal controls that allowed the scheme to occur.

3. The US law firm case in the United Kingdom 

A facilities manager and company director of a US law firm colluded to defraud their own company. They used personal email addresses and phone numbers to send invoices to suppliers and conceal their activities. They then created dummy companies with fictitious directors to submit invoices for work that was never performed.

The scheme ran for years before the UK finance team suspected irregularities and triggered an audit that ultimately exposed the entire fraudulent operation, with total losses exceeding £1 million.

Read more: Business Trip Policy Sample to Cut the 20% Expense Fraud Risk

How to detect invoice fraud?

To avoid financial losses, how can you identify invoice fraud? Here are some ways to detect it:

• Vendor information does not match: Pay attention to discrepancies in vendor names, addresses, or contact details. Small differences are often early signs of an invoice fraud scheme, especially in vendor impersonation cases.
• Unknown vendor: Invoices from vendors not in the database or transaction history should go through additional verification before processing.
• Duplicate invoices: If multiple invoices have identical or similar numbers, amounts, or dates within a short timeframe, it is a sign of invoice fraud.
• Urgent language or high-pressure tactics: Requests for immediate payment, threats of fines or contract termination, or unfamiliar contact instructions are classic fraud tactics.
• Unusual amounts: Figures that are significantly higher or lower than usual, or inconsistent with previous invoices from the same vendor, should be investigated further.
• Unprofessional invoice appearance: A disorganized format, low-quality logo, inconsistent fonts, or misaligned text are indicators that the document was not produced by a legitimate system.
• Sudden changes in billing patterns: A sudden increase in invoice frequency or amounts, unusual changes to billing schedules, or currency inconsistencies for example, a vendor who typically bills in IDR suddenly billing in USD should be verified directly with a known vendor contact.
• Incomplete or overly vague descriptions: Invoices lacking an invoice number, customer name, or clear and detailed descriptions of goods and services indicate that the document did not go through a standard issuance process.

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

How to prevent invoice fraud?

The best prevention is a combination of structured procedures, multi-party involvement, and supporting technology. Here are steps that can be taken to prevent invoice fraud:

1. Confirm every payment change 

Always confirm changes to account information or payment instructions by phone with a known vendor contact. Do not mention the requested new details. Ask the contact to repeat them to verify authenticity.

Read more: Payment Fraud Detection to Stop Revenue Leak

2. Implement strict accounts payable controls 

Implement two-way matching (invoice vs. purchase order) or three-way matching (invoice vs. PO vs. proof of receipt). Use it as a minimum verification standard. These steps can significantly help reduce the risk of unauthorized payments, whether due to fraud or unintentional errors.

3. Conduct regular invoice reviews 

Invoice audits should not only be performed when a problem arises. Schedule consistent reviews covering audits of invoices and outstanding balances, matching payments to invoices, and monitoring due dates. Regular reviews keep AP teams more vigilant and quicker to detect anomalies.

4. Multi-layered approvals 

The best review process always involves more than one person. Invoice approval and payment execution should ideally be handled by different individuals. If an invoice relates to a specific department, involve a stakeholder from that department as the primary validation source.

5. Use modern accounts payable software 

Modern AP platforms are not just administrative tools they are an active layer of defense against invoice fraud. Choose a platform that automates matching. It centralizes invoice communication in one system and gives full visibility into outstanding balances for each vendor.

Detect and prevent invoice fraud with the fraud AI checker from Mekari Expense

Basically, preventing invoice fraud manually, especially when transaction volumes are high, can open up greater risk gaps. A single invoice that passes through without verification will certainly cause significant losses, so to address this, businesses need a more structured system to manage and oversee expenditures.

As a spend management platform and comprehensive procurement solution in Indonesia, Mekari Expense helps businesses build a multi-layered control system against invoice fraud to automate and digitize the verification process from start to payment.

Equipped with AI-powered OCR to eliminate manual data entry and reduce human error, combined with a Fraud AI Checker to analyze every transaction in real-time and detect potential invoice fraud risks.

Mekari Expense’s key features for preventing invoice fraud:

• Multi-level approval workflow: Every invoice and purchase request goes through an approval chain tailored to company policies, budget limits, and departmental hierarchy. No payment can be executed without passing through all established verification stages.
• Centralized vendor management: A centralized vendor database to ensure that only registered and verified vendors are used in transactions.
• AI-Powered OCR: AI-based OCR to automatically scan invoices by extracting data into the system without manual input, minimizing the risk of data manipulation and speeding up the process with greater accuracy.
• Digital purchase request & PO: Every purchase request is recorded digitally with automatic routing, creating a complete and transparent audit trail for every transaction to facilitate investigation if any anomaly is detected.
• Full integration from PO to payment: Directly connected to the broader Mekari ecosystem, such as Mekari Jurnal, for reconciliation and detection of discrepancies between invoices, POs, and executed payments.

With the Fraud AI Checker in Mekari Expense, every transaction is not only processed, but also analyzed in real-time to detect potential fraud, complete with a risk score and actionable insights that can be immediately followed up.