AP Fraud Red Flags: What Every AP Professional Should Watch For

Accounts payable fraud costs businesses an estimated 5% of revenue annually. As an AP professional, you’re often the last line of defense before money leaves your organization. Knowing what to look for can save your company thousands—or even millions—of dollars.

Types of AP Fraud

Fraud in accounts payable falls into two main categories:

External Fraud

Committed by outsiders—fake vendors, scammers, or criminals impersonating legitimate vendors.

Internal Fraud

Committed by employees—creating fictitious vendors, manipulating payments, or colluding with real vendors.

Both types leave warning signs if you know where to look.

External Fraud Red Flags

Vendor Red Flags

1. New vendor with no paper trail

No website or very basic website created recently
Business address is a residential location or PO Box
Phone number goes to voicemail or isn’t answered professionally
No presence on LinkedIn, industry directories, or review sites

2. Vendor details match employee information

Address matches an employee’s home address
Phone number matches an employee’s personal number
Bank account is a personal account, not business

3. Unusual vendor behavior

Refuses to provide W-9 or tax documentation
Pressures for immediate payment
Provides only a cell phone, no landline
Cannot provide references or client list

Invoice Red Flags

1. Invoice doesn’t match vendor records

Different address than what’s on file
Different bank account for payment
Different contact information
Logo looks different or low quality

2. Vague or unusual descriptions

“Consulting services” without specifics
“Miscellaneous supplies” without itemization
Services that seem outside the vendor’s normal offerings
Round dollar amounts (exactly $5,000.00)

3. Documentation issues

No purchase order reference when one should exist
Invoice number format differs from previous invoices
Missing tax ID or different tax ID
Poor print quality or formatting inconsistencies

Payment Request Red Flags

1. Urgency and pressure

“Pay immediately or service will be cut off”
“Wire transfer required today”
Threats of legal action for recent invoices

2. Payment method changes

Request to change from ACH to wire
Request to send payment to a different address
New bank account information via email
Request for gift cards or cryptocurrency

3. Communication anomalies

Email domain slightly different than usual
Sender name is correct but email address is wrong
Poor grammar from typically professional vendor
Request comes outside normal business hours

Internal Fraud Red Flags

Employee Behavior Red Flags

1. Lifestyle changes

Living beyond apparent means
Sudden expensive purchases
Reluctance to take vacation
Working unusual hours when others aren’t around

2. Control issues

Refuses to let others handle certain vendors
Gets defensive when questioned about payments
Circumvents approval processes
Insists on handling their own expense reports

3. System access patterns

Accessing vendor records outside normal duties
Changing vendor information without documentation
Processing payments just below approval thresholds
Splitting invoices to avoid review limits

Process Red Flags

1. Segregation of duties violations

Same person creates vendors and approves payments
Same person receives goods and processes invoices
Same person reconciles bank statements and processes payments

2. Approval process bypasses

Invoices processed without proper approval
Payments made before goods/services received
Rush payments that skip normal verification

3. Documentation gaps

Missing receiving reports
Purchase orders created after invoice received
Approvals from people who wouldn’t normally approve that type of expense

Vendor and Payment Pattern Red Flags

1. Suspicious vendor patterns

Vendor receives payments but never has issues or returns
Vendor address is similar to employee address
Multiple vendors with same address or phone
Vendor was set up shortly before receiving large payment

2. Payment anomalies

Payments always just under approval thresholds ($4,999 when limit is $5,000)
Round number payments
Duplicate payments to same vendor
Payments to vendors with no signed contract

3. Timing patterns

Payments processed right before month-end close
Invoices dated on weekends or holidays
Payments made during management vacation

High-Risk Areas to Monitor

Ghost Vendors

Fictitious vendors created by employees to steal money.

Warning signs: - No online presence - Only PO Box address - Receives payments but never has credits or returns - Single employee handles all interactions - No signed contract or documentation

Kickback Schemes

Employee receives payment from vendor in exchange for steering business or approving inflated invoices.

Warning signs: - Vendor’s prices consistently higher than market - Employee resistant to competitive bidding - Employee has personal relationship with vendor - Invoices approved without question regardless of amount

Check Tampering

Employee alters checks or creates unauthorized checks.

Warning signs: - Check numbers out of sequence - Checks to unfamiliar payees - Checks lack supporting documentation - Payee name similar to legitimate vendor but slightly different

Billing Schemes

Employee submits false invoices for payment.

Warning signs: - Personal expenses disguised as business expenses - Invoices from vendor with employee connection - Services that seem vague or unverifiable - No evidence that goods/services were received

What to Do When You Spot Red Flags

Don’t Ignore It

Trust your instincts. If something feels wrong, it probably deserves investigation.

Document Your Observations

Note specific details: - What seemed unusual - Dates and amounts involved - Any patterns you’ve noticed - Who is involved

Report Through Proper Channels

Most companies have a process for reporting concerns: - Direct supervisor (unless they’re involved) - Internal audit department - Ethics hotline - HR or compliance officer

Don’t Confront Suspected Fraudsters

Leave investigation to professionals. Confrontation can: - Tip off the perpetrator - Lead to evidence destruction - Create legal liability - Put you at risk

Preserve Evidence

Don’t delete emails or documents related to your concerns. Make copies if appropriate.

Building Fraud Prevention into Your Process

Strong Internal Controls

Segregate duties between vendor setup, invoice approval, and payment processing
Require multiple approvals above certain thresholds
Regularly audit vendor master file
Match invoices to POs and receiving documents

Vendor Verification

Verify new vendors through independent sources
Confirm bank changes through known phone numbers
Periodically verify existing vendor information
Check vendor addresses against employee addresses

Controlled Invoice Intake

When invoices can arrive from anywhere—email, mail, fax, vendor portals—it’s easy for fraudulent invoices to slip in. A single, controlled intake point creates consistency and accountability.

Regular Audits

Surprise audits of AP processes
Regular vendor master file reviews
Bank reconciliation by someone outside AP
Data analytics to spot unusual patterns

Key Takeaways

Both external and internal fraud leave warning signs
Trust your instincts when something seems off
Document concerns and report through proper channels
Strong controls prevent most fraud before it happens
Never confront a suspected fraudster directly

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AP Fraud Red Flags - What Every AP Professional Should Watch For