What Are the Red Flags of Accounts Payable Fraud?


In any business, accounts payable and invoice management are areas where fraudulent activity is most often seen. It’s important that people within an organization understand the risks of accounts payable fraud, and also what to look for in terms of red flags.

One of the reasons accounts payable is vulnerable to fraud is because so much money is going out from this department in a business. Everything a business spends is ultimately going through AP.

One of the best ways to eliminate or at least lower the risk of fraud in accounts payable is to automate processes using invoice management software. However, even with automated invoice processing, diligence and knowing what to look for are still important concepts.

The following are some red flags and things to watch for regarding accounts payable and invoice fraud.

Duplicate Payments

If there is one of the most common things that happens with AP fraud, it’s duplicate payments. Duplicate payments aren’t always fraudulent. Sometimes, they can be the result of human error, but that’s something that can be reduced with the use of automated software as well.

When duplicate payments are the result of fraud, however, it’s preventable, but if it takes too long to discover what’s happening, it can be very costly in the process.

There Is a Common Profile

While no organization wants to feel like they are stereotyping their employees, there are some certain groups of employees more like to participate in AP fraud than others.

According to the Global Profiles of the Fraudster report from KPMG in 2016, people who commit fraud in a business are often in higher-level positions, such as director or executive-level. Often, perpetrators have also been employed by the company for at least six years.

If an employee seems dissatisfied, restless or they seem to feel like they aren’t getting what they deserve from the company, these can be issues that could be red flags that fraud is being committed as well.

Vendor Reviews

When the AP department is busy and processing seemingly endless streams of invoices, they may not review every vendor, but it’s important that this is done. The AP team should regularly go over current vendors, and before a new vendor is put into the system, they should be vetted and approved.

It can be more time-consuming to manually verify that a vendor is legitimate, but that bit of extra time can go a long way in preventing AP fraud.

There are plenty of other red flags to look out for with AP fraud in addition to these. For example, are there very large purchases on an employee’s corporate card, are invoices missing important details, or are multiple invoices paid on the same date? Sometimes there may be significant entertainment charges, amounts rounded to the next dollars, or there may seem to be a strangely close relationship between a particular employee and vendor.

Invoice automation software can prevent many of these situations, or at least bring them to light much faster than what would ordinarily happen if invoices are handled manually.

Author: Susan Melony