Common accounts payable fraud schemes and how to prevent them

Key Takeaways

• Accounts payable fraud schemes often involve fake vendors, duplicate invoices, or tampered payment details. 

• Real-world accounts payable fraud cases highlight the financial and reputational damage that can result from weak AP controls. 

• Vendor verification, segregation of duties, and audit trails serve as essential safeguards against fraud schemes in accounts payable. 

• A layered defense strategy is the most effective way to address accounts payable fraud schemes in both manual and digital workflows. 

Payment fraud is a persistent threat in accounts payable (AP) operations, often resulting in significant financial losses and reputational damage. Understanding the most prevalent accounts payable fraud schemes is crucial for implementing effective prevention strategies. 

Recognizing common accounts payable frauds

Several fraud schemes in accounts payable are frequently encountered across industries: 

• Fake vendor setups: Fraudsters create fictitious vendors to submit fraudulent invoices, diverting funds for non-existent goods or services. 

• Duplicate payments: Submitting the same invoice multiple times, sometimes with slight alterations, leads to overpayments that are siphoned off by the perpetrator. 

• Check tampering: Unauthorized alterations to checks, such as changing the payee name or amount, enable illicit fund redirection. 

• ACH fraud: Manipulating electronic payment systems to reroute funds to unauthorized accounts, often through phishing or insider collusion. 

• Expense reimbursement schemes: Employees submit inflated or fictitious expenses for reimbursement, exploiting lax oversight. 

Notable accounts payable fraud cases

Real-world accounts payable fraud cases underscore the importance of vigilance. 

In one high-profile case, a fraudster gained access to a vendor’s email account and altered legitimate invoices to reroute funds to fraudulent bank accounts. The affected company only discovered the loss after the funds were unrecoverable, highlighting how easily vendor email compromise can go undetected. 

In another instance, a global consulting firm was penalized for submitting false invoices with receipts from fake vendors — an external fraud scheme that ultimately led to a global debarment. 

Even public figures aren’t immune. Barbara Corcoran, a prominent businesswoman, was nearly defrauded of $400,000 through an email spoofing scam that mimicked her assistant’s account. 

These accounts payable fraud cases demonstrate the evolving tactics used by external actors and underscore why layered prevention strategies — from vendor validation to payment verification — are critical. 

Strategies for preventing accounts payable fraud

Implementing comprehensive measures can significantly reduce the risk of fraud: 

• Vendor verification: Establish stringent processes for onboarding and regularly auditing vendors to ensure legitimacy. 

• Segregation of duties: Divide responsibilities among different employees for invoice approval, payment processing, and account reconciliation to prevent unauthorized actions. 

• Automated systems: Utilize AP automation tools that offer features like three-way matching, duplicate invoice detection, and audit trails to enhance oversight. 

• Regular audits: Conduct periodic internal and external audits to identify discrepancies and enforce compliance with established procedures. 

• Employee training: Educate staff on recognizing fraud indicators and encourage reporting of suspicious activities through anonymous channels. 

Leveraging managed services for fraud prevention

Partnering with a managed services provider like Corcentric can significantly strengthen your defense against accounts payable fraud schemes. One of the most powerful tools in Corcentric’s approach is a 12-step validation process designed to identify red flags before payments are ever released. This multi-layered screening has already helped prevent over $5.7 million in fraud-related losses in just the past year. 

Our managed services provide: 

• Expert oversight: Dedicated professionals prevent fraud before it happens by monitoring transactions for anomalies and enforcing compliance protocols. 

• Advanced technology: State-of-the-art tools detect and prevent fraudulent activities through real-time analysis and alerts. 

• Customized strategies: Tailored approaches address your organization’s specific risks and operational needs, recognizing that technology alone isn’t enough. 

And for organizations modernizing their procurement and finance workflows, streamlined payment processing services can also help reduce vulnerability to payment fraud. 

By integrating these services, businesses can enhance their financial security and focus on core operations without the constant concern of fraud. For a closer look at how to design a layered strategy, check out our recent media coverage on preventing payment fraud strategies. 

Protect your organization from accounts payable fraud. Contact Corcentric today to learn how our managed services can fortify your financial operations.