Money Matters

Accounts payable fraud prevention: What is it and how to prevent it

Learn accounts payable fraud prevention: how to spot schemes, minimise risk, and protect your business with our guide for South African businesses today.

April 30, 202612 min read Share

Learn all about accounts payable fraud, how to spot common schemes, and how to minimise the risk and protect your business with our in-depth guide.

Accounts payable (AP) fraud is an issue that any business should take seriously.

It can have a big impact on your company’s financial health, operational efficiency, and overall reputation.

In fact, AP fraud can cost businesses millions of rand.

Not to mention the damage it can do to the trust and relationships you’ve built with suppliers and customers.

Unfortunately, fraud targeting business finances is becoming an increasingly common threat.

According to PwC’s Global Economic Crime and Fraud Survey, procurement fraud remains a widespread concern for organisations and is among the most disruptive economic crimes experienced by businesses in recent years.

These types of fraud often occur within purchasing and payment processes — including the handling of supplier invoices and payments — making the accounts payable function a key risk area for many organisations.

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 cover:

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Key takeaways

• Accounts payable fraud is a common and costly risk, especially for businesses with weak controls or manual AP processes. It can affect finances, operations, and trust with suppliers.
• Most AP fraud happens through invoices, payments, or insiders, including duplicate or fake invoices, unauthorised payments, altered bank details, and employee collusion.
• Early detection depends on knowing the warning signs, such as unusual payment patterns, incomplete invoices, duplicate suppliers, and inconsistent supplier information.
• The most effective prevention combines strong controls, segregation of duties, staff awareness, and automation, which together reduce opportunities for fraud and improve visibility.

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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 happen for a variety of reasons, but it usually boils down to 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 key to preventing fraud is catching it early, which requires proactive systems, checks, and regular audits.

The financial and operational consequences of AP fraud can be devastating, so it’s important 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 happens when a supplier or employee submits fake invoices or duplicates legitimate invoices to receive payments 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 look legitimate at first glance, but the extra payment goes into 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 fraudulent payments: In some cases, payment instructions are tampered with after being issued. This could mean changing beneficiary bank details, falsifying payment authorisation, or increasing the payment amount to divert funds to a fraudster’s account.

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 that 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.

EFT fraud

This is when someone unlawfully gains access to your company’s bank account to make unauthorised electronic payments or transfers through the electronic funds transfer (EFT) system.

The EFT system is commonly used for direct deposits, bill payments, and money transfers.

The fraudster might steal account details or manipulate transactions to divert funds.

This can be done through phishing, hacking, or using stolen information to create unauthorised payments.

Once the funds are transferred, they can be hard to trace and recover, making it a significant financial risk for businesses.

Kickback schemes

A type of billing or invoice fraud where a company employee works with suppliers to overcharge your business.

For instance, they may inflate an invoice with the understanding that the employee gets a kickback (a bribe or commission) from the supplier in exchange for approving and processing the invoice.

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 an Uber ride that wasn’t for business purposes.

Or two colleagues on a trip together could both claim for 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 seems wrong, such as invoices that only list 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, team members who live beyond their means or 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 oversees 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 tax number.
• Contacting them directly to confirm their identity.
• Verifying their physical address.

Leverage AP automation software

Using AP automation software can significantly 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 rand to an employee who manipulated accounts payable records for years.

They were able to divert funds by authorising electronic 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 rand 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

An office manager embezzled nearly R3,700,000 from the business where they worked. They issued more than 100 fraudulent cheques to themselves, forging the signature of the business’s 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 preventing unauthorised payments.

Features such as automated invoice processing, fraud detection alerts, and secure payment processing can help safeguard your business against accounts payable fraud.

It’s time to act!

Review your AP processes, train your teams, and introduce fraud-proofing measures that will help give you peace of mind and keep your business vigilant.

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