Seven Red Flags and Prevention Tips for Detecting Accounts Payable Fraud

If you notice a sudden or unexplained payment increase to a specific vendor but no apparent rise in goods or services, you might be looking at a billing scheme fraud. It’s a telltale sign that could indicate an attempt to siphon funds by colluding with a vendor or setting up a fictitious vendor account.

Prevention tips:

A digital invoice system can help automate and raise red flags automatically if something is off. Additionally, regularly conduct vendor audits to validate the legitimacy of vendors and the services they provide. Always double-check that payments align with the goods or services received, and stay in touch with your procurement team to ensure that all purchases are properly authorized.

Another red flag to watch out for is disproportionately large payment(s) to a single vendor. Fraudsters use this tactic to funnel funds to a fake vendor – or sometimes, the supplier and fraudster are conspiring together, and is known as a kickback scheme with the fraudster getting a “kickback” or portion of the funds for arranging and executing the set up.

Prevention tips:

It’s a good idea to have a multi-level approval process in place so that high-value transactions go through several levels of authorization, where different people in your organization will carefully review and verify them. With the help of accounts payable automation software, you can easily set up these parameters. This way, if something seems off, your team will be automatically notified.

Your team will definitely raise an eyebrow and your AI-backed AP software a flag if an employee with a company-issued credit card suddenly has an excessive purchase that wasn’t authorized or submits false expenses and claims –or reimbursement fraud– for purchases that don’t exist or fall outside company travel and expense policies.

Prevention tips:

With regular, detailed reconciliation of employee credit card expenses and detection technology to identify unusual patterns, you can stay ahead of unruly employees. Encourage everyone in your organization to report suspicious activities and strictly adhere to company credit card policies and implement a whistleblower process to protect anyone from potential retaliation.

A sly, common trick fraudsters use is keeping payments just below the threshold that requires higher-level authorization, helping them avoid scrutiny while stealing money.

Prevention tips:

Don’t let them fool you. Implement randomized checks or set up reports in your AP automation software for payments below the authorization threshold.

Double trouble in invoice fraud. Receiving multiple invoices for the same goods or services is a glaring indicator of potential AP fraud or a messy invoice process. Fraudsters might exploit this loophole to submit duplicate invoices for payment, pocketing the excess funds.

Prevention tips:

Enforce a robust, automated invoice-matching process where received invoices are cross-referenced with purchase orders and delivery receipts. With detailed approval setups for each invoice, duplicate invoices are immediately caught.

If you notice any anomalies or anything strange in payment amounts, like unexpected fluctuations, it could be a sign of fraud.

Prevention tips:

Use data analytics and monitoring tools to spot any weird payment patterns. Automated systems – and modern artificial intelligence – can highlight suspicious transactions for manual review and let you look at payment history overview for any window of time, allowing quick action when things don't add up.

Your red flag radar will go off if, suddenly, payments skyrocket, especially during off-peak periods. Fraudsters might exploit less busy times to push through unauthorized payments.

Prevention tips:

You can ward off fraudsters with a system that standardizes payments through a single channel – allowing you to set limits, easily monitor dashboards for sudden increases, and send automated alerts to your team.

Since the pandemic, invoice fraud cases have seen a whopping 75% increase. But don't worry; with knowledge, policies, procedures, and accounts payable automation software, your AP team can be your first line of defense against fraud. You’ll not only be able to spot red flags —you’ll end fraud before it even happens.