The Most Common Types of AP Fraud

Accounts payable departments recognize that AP fraud exists as well as the importance of knowing fraud schemes. While learning in our Tips for Identifying Accounts Payable Fraud blog that Accounts Payable fraud can take shape in multiple forms and can be committed internally by employees, externally by vendors, internal and external parties working together to commit fraud, or internal/external hackers, it is important to also note the types of AP fraud schemes. 

Here are some common types of AP fraud: 

1. Billing Schemes

Per the Association of Certified Fraud Examiners (ACFE), billing fraud is the most common type of fraud within the accounting department. There are multiple variations of billing fraud, including:

• Generating invoices from inactive suppliers and writing checks to the vendor the company no longer does business with.
• Employees setting up shell companies that creates fake invoices for real items the company receives from other suppliers. Sometimes employees will destroy invoices from legitimate companies and place a mark-up on items received. Their shell company then issues legitimate payments to the supplier and keeps the profit. Most frequently these shell companies are created under the employee’s or a relative’s address.

1. ACH Fraud

ACH has seen an increase in cyberattacks as more businesses migrate to ACH payments. Oftentimes, cybercriminals can gain access to ACH payment accounts through compromised emails. The attacker will then send a fake invoice that appears to be from a real supplier that will infect the target’s machine with malware and steal valuable information.

1. Internal/External Parties Working Together

In these types of schemes, a supplier generally works with an AP team member to inflate their invoice amount. The supplier then splits the difference with the internal team member.

1. Reimbursement Fraud

This includes employees falsifying receipts, duplicate reimbursement submissions from employees to traveled and dined together, submitting non-qualifying reimbursement items, and claiming the maximum expense allowed without a receipt or other proof.

Conclusion

While Accounts Payable departments may be aware of these schemes, staying vigilant is a critical part of the job. By using EZ Cloud to gain visibility into the process to verifying questionable invoices or behavior, it is important to maintain awareness of fraud schemes, as recognizing these common types of AP fraud can provide your department with the power to prevent schemes from occurring or stop them quickly.