What constitutes Accounts Payable (AP) or Billing Fraud?

Billing fraud or Accounts Payable (AP) fraud primarily occurs when payments are made based on fraudulent claims rather than legitimate invoices or services. In this context, sending checks to fake invoices or shell companies exemplifies a direct manipulation of the billing process where an entity submits invoices for services or products that were never provided. This can involve creating nonexistent vendors or shell companies that do not provide any goods or services but instead funnel money out of the legitimate business.

This practice of sending payments to fraudulent invoices undermines the integrity of the financial operations of an organization and can result in significant monetary losses. It reflects an intentional act of deception that is indicative of AP fraud, where the controls expected to prevent such practices are exploited.

In contrast, the other scenarios may involve financial mismanagement or unethical practices but don’t fit the specific definition of billing fraud as clearly. Delaying payments to legitimate vendors could be a cash flow management strategy, overcharging for legitimate products involves pricing policies rather than fraudulent billing, and generating reports to underreport expenses reflects poor financial reporting rather than the direct fraudulent activity associated with AP fraud.