Accounts payable fraud: What is it and how to prevent it
This guide explores accounts payable fraud in depth, showing you how to spot common schemes, minimise risk, and safeguard your business.
Accounts payable (AP) fraud is an issue that businesses of all sizes should take seriously. It can have a significant impact on your company’s financial health, operational efficiency, and overall reputation.
In fact, fraud can result in significant financial losses, in some cases amounting to millions of pounds, not to mention the damage it can do to the trust and relationships you’ve built with suppliers and customers.
Unfortunately, AP fraud is becoming an increasingly common threat to businesses of all sizes. According to the 2025 AFP Payments Fraud and Control Survey Report (a US-based industry study often referenced globally), 79% of organisations said they were victims of payments fraud attacks or attempts in 2024.
This article will explain what accounts payable fraud is, common fraud schemes, how to detect it, and how to prevent it.
Additionally, you’ll be able to read about some practical steps you can take to protect your company from the risk of AP fraud.
Here’s what we’ll cover:
What is accounts payable fraud?
Accounts payable fraud refers to any dishonest activity or scheme that involves manipulating your company’s accounts payable system.
These schemes generally revolve around two main components:
- The nature of the supplier involved (which could be a fake supplier or a legitimate one)
- The fraudulent actions carried out.
The fraudulent activities themselves can take many forms, including:
- Submitting false invoices
- Altering payments
- Masking unauthorised purchases
- Colluding with employees to steal money from a company.
Each of these actions allows the fraudster to manipulate the AP process and steal funds from the company.
In many cases, fraudsters target weaknesses in internal controls, processes, or manual checks, making it easier for them to divert funds without detection.
Whether it’s exploitation of simple human error or deliberate manipulation, AP fraud is often difficult to identify until it’s too late.
As such, it poses a particular risk to small and medium-sized businesses that may not have robust enough fraud prevention systems in place.
Why does accounts payable fraud happen?
AP fraud can occur for a variety of reasons, but it usually stems from a lack of internal controls or opportunities for manipulation within the AP process.
Sometimes, fraud is carried out by outsiders, such as suppliers who intentionally submit fake or inflated invoices.
Other times, it’s an inside job, with employees using their position to approve unauthorised payments or create fictitious suppliers.
The financial and operational consequences of AP fraud can be severe, so it’s crucial that you put systems in place to enable early detection and prevention.
Common accounts payable fraud schemes
Understanding how different types of AP fraud work will help you recognise and address potential risks to your business.
Here are some of the most common accounts payable fraud schemes:
Invoice fraud: Duplicate invoices, overcharging, and fictitious suppliers
One of the most common types of AP fraud is invoice fraud. This occurs when a supplier or employee submits fraudulent invoices or duplicates legitimate invoices to receive payment for goods or services that were never delivered.
- Duplicate invoices: the same invoice is submitted more than once for payment. Sometimes it might be under a different name or with a slight modification. The invoice may appear legitimate at first glance, but the extra payment ends up in the fraudster’s pocket.
- Overcharging: fraudsters may alter the amounts on legitimate invoices, overcharging for goods or services. In some cases, this can be difficult to spot unless you thoroughly review the details of each invoice.
- Fictitious suppliers: a more sophisticated form of invoice fraud involves creating fictitious suppliers. In this scenario, an employee or supplier may set up a fake company and submit invoices for products or services that don’t exist.
Payment fraud: Unauthorised payments, altered cheques, and account manipulation
Payment fraud can take several forms, including:
- Unauthorised payments: this happens when someone inside your organisation authorises payments for goods or services that were never delivered. Or they might authorise fake payments to their own personal account.
- Altered or forged cheques: in some cases, cheques are forged or altered after they have been issued. This could mean forging a colleague’s signature, changing the payee’s name, or increasing the amount on the cheque to divert the funds to the fraudster.
Employee fraud: Insider threats and collusion
Employee fraud is another major risk to be aware of. Any of your team members who have access to sensitive financial data could, in theory, take advantage of this to commit fraud.
It can be challenging to detect without careful oversight, so it often goes unnoticed for long periods.
Collusion is an example of employee fraud. It’s when two or more of your team members work together to defraud your company.
For instance, one employee might create a fake supplier in the system whilst another approves the payment.
Other accounts payable fraud schemes
Pass-through schemes
An employee responsible for approving invoices and authorising payments creates a shell company to order items your business legitimately gets from other suppliers.
The shell company marks up these items and sells them to your business, allowing the employee to pocket the profit.
These schemes often involve systematic markups and can be quite complex, with numerous variations in how they are carried out.
Bacs fraud
This type of fraud occurs when criminals exploit Bacs (Bankers’ Automated Clearing System) to make unauthorised Direct Debit or Direct Credit payments, or to divert legitimate payments to accounts they control.
The Bacs network is commonly used for salary payments, supplier payments, and Direct Debits. Fraud can occur when attackers gain access to payment files, manipulate supplier or employee bank details, or submit fraudulent Direct Debit instructions.
This is often achieved through phishing, malware, compromised credentials, or social engineering tactics such as mandate fraud. Once Bacs payments are processed, recovering the funds can be difficult, making this a significant financial risk for UK businesses.
Bacs fraud differs from Faster Payments or CHAPS fraud in that it usually involves the manipulation of scheduled Direct Debit or Direct Credit files, rather than one-off, real-time bank transfers.
Kickback schemes
A type of billing or invoice fraud where a company employee works with a supplier to overcharge your business.
For instance, they may inflate an invoice, with the understanding that the employee receives a kickback (a bribe or commission) from the supplier in exchange for approving and processing it.
Expenses and reimbursement fraud
When employees submit false or inflated expenses for reimbursement. They might claim personal expenses as business-related or exaggerate the cost of legitimate business expenses.
For example, an employee might submit a receipt for a taxi ride that wasn’t for business purposes. Or two colleagues on a trip together could both claim the total cost of the same joint meal.
How to detect accounts payable fraud
Recognising accounts payable fraud early can save your business a lot of money and hassle.
In this section, you’ll find a list of common red flags to look out for and some accounts payable fraud detection strategies to be aware of.
Atypical or missing invoice details
This could be invoices missing important information, such as the VAT number or purchase order number.
Also, look out for information that appears incorrect, such as invoices that list only a PO Box number in the contact details section.
Inconsistent supplier information
If you notice any discrepancies in your supplier records—such as inconsistent business addresses, VAT numbers, or contact details—this could be a red flag.
Fraudsters often try to avoid detection by using fake or altered supplier details.
Suspicious supplier activity
Regularly review your supplier database for signs of suspicious activity.
This could include numerous inactive or duplicate suppliers listed in your files. Or invoice information that doesn’t align with the supplier details in your database.
Also, pay close attention to any suppliers consistently awarded contracts, as well as new suppliers — particularly if they’ve won a big, unexpected contract.
Duplicate payments
It’s easy for duplicate payments to slip through the cracks, especially if invoices are processed manually.
If you notice multiple payments for the same invoice or the same amount, it’s worth investigating further.
Unusual payment patterns
Be on the lookout for payment patterns that seem unusual or inconsistent.
For example, are there sudden spikes in payments to particular suppliers or irregular payments that don’t align with normal business operations?
These could be signs of fraudulent activity.
Missing or altered documentation
If invoices, receipts, or other supporting documentation seem to be missing or look like they might have been altered, this is another potential indicator of fraud.
Fraudsters often manipulate or destroy documents to cover their tracks.
Supplier complaints and staff behaviour
If a supplier tells you they never received payment or complains of frequent late payments, look into it straightaway. Especially if your records tell you the payment was made.
Keep an eye out for any unusual or suspicious employee behaviour.
For instance, employees displaying unexplained changes in lifestyle or financial behaviour are reluctant to share duties with colleagues, could indicate issues.
Accounts payable fraud detection
To boost your chances of staying ahead of fraudsters, consider implementing the following accounts payable fraud detection strategies:
- Regular audits and reconciliations: conduct regular audits and reconcile your accounts to identify any discrepancies early.
- Use of data analytics and AP automation tools: automated systems that can help spot patterns of fraud or unusual activity.
- Segregation of duties: make sure that no one person is in charge of the entire accounts payable process. Separate duties between employees who initiate purchases, approve payments, and reconcile accounts.
How to prevent accounts payable fraud
Putting accounts payable fraud prevention measures in place is the best way to minimise the risk posed by fraudsters.
There are various actions and strategies you can consider. Implementing one or more of these best practices will help you protect your business from AP fraud threats:
Strengthen internal knowledge and controls
The foundation of preventing AP fraud is strong internal controls and frequent checks.
These can include:
- Policies for verifying supplier information
- Educating employees on fraud and its warning signs
- Setting up checks and balances for approving payments
- Ensuring that all invoices are properly reviewed before payment
- Multi-level payment approvals for payments over a certain threshold
- Regular reviews of transactions, random audits, and creating electronic audit trails.
Implement a supplier verification process
Before accepting new suppliers, make sure you have a thorough verification process in place, including:
- Checking the supplier’s VAT registration number
- Contacting them directly to confirm their identity
- Verifying their physical address.
Leverage AP automation software
Using AP automation software can help reduce the risk of fraud.
These tools can help:
- Automate invoice processing and approvals, tracking every movement of an invoice
- Flag suspicious invoices, anomalies, and errors in real time
- Create audit trails and compliant records for all of your transactions.
Accounts payable fraud case examples
To better illustrate the potential consequences of AP fraud, here are some examples:
Manufacturer defrauded
A manufacturer lost millions of pounds to an employee who manipulated accounts payable records for years. They were able to divert funds by authorising wire transfers from the company’s bank accounts.
They used these stolen funds to pay their personal credit card bills and make various personal purchases from luxury retailers.
AP clerk sentenced for fraud
A former accounts payable clerk was sentenced to prison for diverting funds from their employer through fraudulent payments. They defrauded the company of hundreds of thousands of pounds by transferring funds from the business’s bank account.
These funds were sent to their own personal bank accounts, to creditors for personal bills, and to the bank account of another individual.
Embezzlement following signature fraud
The employee embezzled nearly £145,000, issuing more than 100 fraudulent cheques to themselves, forging the signature of the business owner. They attempted to hide their fraud by disguising the cheques as payroll and loans.
The fraudster also used a co-worker’s personal information to apply for and fraudulently obtain a credit card, which they maxed out.
Protect your business from accounts payable fraud
Accounts payable fraud is a crime that can seriously damage your business. It can be costly and hard to detect, with new schemes and tactics emerging all the time.
However, the right systems and strategies can help protect your business from becoming another victim of AP fraud.
By implementing strong internal controls, using data analytics and automation, and educating your team about potential risks, you can reduce the likelihood of fraud in your AP department.
Investing in intuitive accounts payable software is a good first step. It can help detect fraud in real time, flagging suspicious activity and helping to prevent unauthorised payments.
Features such as automated invoice processing, fraud detection alerts, and secure payment processing can help safeguard your business against accounts payable fraud.
Now is a good time to review your AP processes, train your teams, and introduce AP fraud-proof measures that will help give you peace of mind and keep your business vigilant.
