How to Strengthen Your Accounts Payable Process Against Fraud

Why are small businesses vulnerable?
Small businesses face unique challenges that make them attractive targets for fraudsters. Limited oversight means one person often handles multiple aspects of the payment process, creating opportunities for both internal and external fraud. Informal processes, such as verbal approvals, make it difficult to verify legitimate transactions. Because many small businesses operate on trust, scammers who impersonate vendors or create fake invoicing schemes can exploit that openness.
The Hidden Costs Beyond Fraud
Even without fraudulent activity, weak accounts payable controls can drain your profits through:
- Unnecessary Spending: Without proper oversight, you might discover you're paying for multiple software subscriptions with overlapping features, automatic renewals for unused services, or inefficient vendor contracts.
- Payment Errors: Duplicate payments, incorrect pricing, or paying for goods never received can significantly impact cash flow. These mistakes often go unnoticed for months without proper verification processes.
- Compliance Issues: Poor documentation and informal processes can create problems during audits or when dealing with vendor disputes.
Building Your Defense
Once you understand the risks, the next step is creating layers of protection that work together to secure your accounts payable process. These controls don't have to be complicated or expensive; they just need to be consistent.
Implement the Three-Way Match System
The foundation of accounts payable security is a thorough verification process. Confirm purchase order details against the original order, verify receiving documents to ensure goods or services were delivered, reconcile invoices with both the PO and receiving documentation, resolve discrepancies before processing, and authorize payments only when all documentation aligns.
Separate Financial Duties
Even with small teams, spreading responsibilities creates checks and balances. The person approving purchases shouldn’t process payments, and those handling payments shouldn’t reconcile bank statements. When full separation isn’t possible, conduct regular executive reviews of high-value transactions and consider cross-training staff to preserve coverage while maintaining oversight.
Strengthen Vendor Management
Always verify new vendors through independent channels, using official contact details rather than information provided on invoices or emails. Watch for red flags such as P.O. box addresses, names similar to legitimate vendors, or sudden changes in payment methods. Regularly review vendor files to identify inactive accounts, duplicates, or suspicious changes.
Establish Clear Authorization Levels
Define approval processes that balance efficiency with security. Set dollar thresholds, require multiple approvals for larger transactions, document approvals with signatures or electronic records, and review thresholds periodically as your business grows.
Practical Implementation Strategies
Strong controls are only effective if they’re applied consistently. Start by documenting every transaction with purchase orders, receiving documents, original invoices, payment approvals, contracts for recurring services, and supporting evidence for vendor changes or large purchases.
Technology can further reduce risk. Modern accounting software offers automated approval workflows, role-based access controls, detailed audit trails, and duplicate payment alerts. It's important to also monitor monthly bank reconciliations, quarterly vendor statement reviews, and exception reports.
Common Fraud Schemes to Watch For
Knowledge is your first line of defense. Understanding how fraudsters operate helps you spot red flags before they become costly mistakes.
- Invoice Manipulation: Scammers intercept legitimate invoices and change payment details, banking information, or amounts.
- Fake Vendor Schemes: Fraudsters create invoices for services never provided, often using names similar to legitimate vendors you work with.
- Employee Kickbacks: Employees may inflate invoices or create fake vendors in exchange for personal payments from fraudulent vendors.
- Payment Redirect Scams: Criminals contact businesses claiming to be existing vendors with "updated" banking information for payments.
Protect Your Business with Lutz’s Audit Experts
Managing financial controls effectively requires balancing security with operational efficiency. At Lutz, our audit and assurance team helps companies implement practical control solutions that protect assets while supporting growth. Contact us to explore how we can help strengthen your business's financial controls and give you peace of mind in your accounts payable processes.

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Kayla Schulte
Kayla Schulte, Audit Director, began her career in 2015. She has developed extensive expertise in audit and assurance services while contributing to the firm's growth through recruiting initiatives and business development efforts.
Specializing in assurance services for employee benefit plans, healthcare organizations, and nonprofits, Kayla focuses on providing comprehensive financial statement audits, budget analysis, and consulting solutions. She values the opportunity to offer clients straightforward insights that help improve their businesses.
At Lutz, Kayla is known for her thoughtful approach and strong sense of connection with those she works with. She values building lasting relationships with both clients and colleagues, which allows her to collaborate more effectively and earn trust over time. When faced with a challenge, she thoroughly examines it from every angle, ensuring her recommendations are well-informed, practical, and tailored to each unique situation.
Kayla lives in Phillips, NE, with her husband, Andrew, and their children, Jackson and Parker. Outside the office, she can be found taking her kids on adventures.
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