🇺🇸United States

AP Fraud, Unauthorized and Non-Approved Purchases

4 verified sources

Definition

Accounts payable is a common channel for **fraudulent payments**, such as fictitious vendors, inflated invoices, and employees making non-approved personal purchases via company funds.[2][3][5] Articles highlight non-approved purchases by untrained or unscrupulous employees as a recurring AP challenge.[3]

Key Findings

  • Financial Impact: ACFE studies (noted in many AP risk discussions) often put median expense-reimbursement and billing fraud losses in the tens to hundreds of thousands per case; at the process level, even 0.1% of a $50M spend lost to fraud is $50,000 per year.
  • Frequency: Monthly
  • Root Cause: Lack of robust vendor master controls, weak approval workflows, inadequate segregation of duties, and overreliance on manual reviews allow fraudulent or inappropriate invoices to slip through.[2][3][5][8]

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Accounting.

Affected Stakeholders

Accounts Payable Clerk, AP Manager, Internal Auditor, Controller, CFO

Deep Analysis (Premium)

Financial Impact

$10,000 - $100,000 per year (material for SMB) • $10,000 - $100,000 per year (variable; high risk for misclassification and tax implications) • $10,000 - $40,000 per year (1-3% of early-stage burn rate)

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Current Workarounds

Batch processing in ERP with post-payment audit; email-based three-way matching; manual reconciliation to vendor statements; quarterly audit reviews • Bookkeeper manually matches invoices to project codes via email; three-way matching via spreadsheet; verbal approvals from Project Manager • Bookkeeper manually tracks restricted fund spending via Excel; email approval from Executive Director; paper fund tracking

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Duplicate and Incorrect Payments to Vendors

Typical duplicate/erroneous payment rates are ~0.1–0.5% of AP spend; for a firm with $100M annual vendor spend this is ~$100,000–$500,000 per year of leakage.

Lost Early-Payment Discounts from Slow AP Approval Cycles

If just 10% of a $50M annual spend is eligible for 2% early-payment discounts but is missed, the organization loses ~$100,000 per year in risk‑free savings.

Late Payment Fees, Interest, and Premium Pricing from Chronic AP Delays

Industry articles cite late fees and missed discounts translating into “thousands or millions of dollars” annually for larger organizations; a conservative example is 1% of a $50M vendor spend in avoidable fees and higher prices = ~$500,000 per year.[2][5]

Excess Labor Cost from Manual Data Entry and Rework

Benchmark studies (cited across AP automation vendors) often estimate manual processing costs at $10–$15 per invoice vs. <$3 automated; for 50,000 invoices per year, excess labor and overhead can exceed $350,000 annually.

Incorrect, Rejected, and Reprocessed Invoices Driving Rework

If 3–5% of 50,000 annual invoices require rework at an incremental $10–$20 of staff time each, this translates to ~$15,000–$50,000 per year in pure rework cost, excluding downstream accounting corrections.

Unplanned and Unpredictable Cash Outflows from Disorganized AP

While exact amounts vary, liquidity crunches can trigger overdraft fees, higher short-term borrowing costs, or forced asset sales; even a 0.5–1.0% increase in short-term borrowing cost on a $10M credit facility is ~$50,000–$100,000 per year.

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