Uncovering Irregularities in Accounts Payable

In business finance, the accounts payable (AP) process is a critical lifeline, ensuring smooth cash flow, strong supplier relationships, and operational stability. Yet, irregularities—such as invoices that don’t match purchase orders, payments made for incorrect amounts, or invoices paid twice—can unravel these efforts, leading to costly errors and inefficiencies. These disruptions, often rooted in manual processes, fraud, or system failures, pose significant risks to mid-size businesses striving for financial precision and trust. 

At CostBits, we’ve witnessed how these challenges hinder organizations, from procurement missteps to payment disputes. Drawing on extensive industry research and real-world insights, this post explores why AP irregularities occur, their far-reaching impacts, how to detect them through data analysis, and practical solutions to safeguard your financial operations.

Why Do Irregularities Occur in Accounts Payable?

AP irregularities stem from a complex mix of human, procedural, and technological factors, creating vulnerabilities that disrupt financial workflows. Whether it’s a purchase order (PO) that doesn’t align with an invoice or a payment mistakenly sent twice, understanding the root causes is essential for prevention. Below, we outline the primary reasons, supported by industry data and practical examples to illustrate their prevalence:

• Human Error: Manual data entry is a significant source of mistakes. A 2023 MHC Automation study found that 88% of manually processed AP documents contain errors, such as incorrect invoice amounts or mismatched POs. For instance, an overworked employee might approve a $10,000 invoice when the PO specifies $9,000, leading to an overpayment that goes unnoticed.
• Process Inefficiencies: Outdated, paper-based AP processes are slow and error-prone. Invoices can get lost, approvals skipped, or payments delayed due to manual handling. According to a 2024 Medius report, manual processes contribute to 65% of AP delays, bogging down teams with repetitive, error-prone tasks.
• Fraud: AP departments are prime targets for fraud, both internal and external. The 2023 Association of Certified Fraud Examiners (ACFE) report notes that billing schemes, such as fake invoices from shell companies, and check tampering result in a median loss of $158,000 per incident. For example, an employee might alter a supplier’s banking details to divert payments. It should be noted that none of our research support the wide spread notion of fraud being the biggest money leak in the AP flow. Internal processes and lack of checks 
• System Issues: Poor integration between AP, procurement, and accounting systems leads to data mismatches. If an ERP system fails to sync invoice details with POs, payments may be processed incorrectly. A 2024 Corcentric report found that 70% of organizations with disparate systems face data reconciliation challenges.
• Communication Gaps: Lack of coordination between procurement and finance teams often causes discrepancies. For instance, if procurement modifies a PO without notifying finance, an invoice may be approved despite mismatches. A 2023 CloudX DPO study attributes 55% of AP errors to inter-departmental miscommunication. The everlasting issue of missing communication from procurement to finance about based supplier mechanics like new payment terms, new prices in the catalogues or amended delivery modes ads further to the range of potential issues.
• Lack of Controls: Weak approval processes or inadequate checks for duplicates allow errors and fraud to slip through. Without three-way matching (PO, receipt, invoice), payments may proceed despite discrepancies. The 2024 NetSuite guide reports that 60% of AP fraud cases involve bypassed controls. Unclear or manual data management is often stipulated as a “lack of control” reason - with tools like CostBits this is a thing of the past.

These factors, often interconnected, create a web of vulnerabilities that businesses must address to maintain financial accuracy and operational efficiency.

The Business Impact of AP Irregularities

The consequences of AP irregularities extend far beyond a single erroneous payment, affecting financial stability, operational efficiency, and stakeholder relationships. These issues can erode a company’s bottom line and reputation if not addressed promptly. Below, we detail the key impacts, grounded in data and real-world implications to highlight their severity:

• Financial Losses: Errors like overpayments, duplicate payments, or fraudulent transactions drain resources. The 2024 Federal Trade Commission report estimates that fraudulent activities cost businesses $12.5 billion in 2024, with AP fraud being a relevant but nor primary contributor.
• Operational Inefficiencies: Correcting AP errors consumes valuable time and resources. Teams may spend hours reconciling accounts, chasing missing documents, or resolving disputes, diverting focus from strategic priorities. A 2024 Rillion case study found that manual error correction increases AP processing time by 50% increasing staff cost even further.
• Strained Relationships: Late or incorrect payments frustrate suppliers, who may impose penalties or withdraw favorable terms. A 2019 G2 study notes that 45% of suppliers consider ending partnerships due to repeated payment issues, impacting supply chain stability. Internally, miscommunication between procurement and finance can create tension, slowing collaboration.
• Compliance Risks: Inaccurate AP records can lead to audit failures or regulatory penalties, particularly if tax documentation is incomplete. The 2023 Thomson Reuters report highlights that 30% of audit issues stem from AP discrepancies, exposing businesses to fines and scrutiny.
• Reputational Damage: Persistent AP issues can erode trust among suppliers, investors, and customers. Publicized fraud cases, such as those involving manipulated invoices, can tarnish a company’s market standing. A 2025 Financial Crime Academy analysis cites reputational harm as a top consequence of financial fraud.

These impacts underscore the urgency of addressing AP irregularities proactively to protect both financial health and stakeholder trust.

Detecting Irregularities Through Data Analysis

Given the significant toll that AP irregularities can take, early detection is critical to minimizing their impact. Data analysis offers powerful tools to identify discrepancies before they escalate into costly problems. By leveraging statistical methods, anomaly detection, and advanced algorithms, businesses can proactively spot irregularities and strengthen their AP processes - however for all the methods below we need relatively clean data since irregularities in PO numbers, supplier names, tax ID etc. all render the subsequent analysis void.

Below, we explore key data-driven techniques, supported by industry research and practical examples which can be deployed after CostBits have handled your data cleaning and normalization:

• Anomaly Detection: This technique identifies transactions that deviate from established patterns, such as unusually large payments, transactions to new suppliers, or payments made outside typical schedules. For instance, a payment of $50,000 when typical invoices range from $1,000 to $10,000 could signal an error or fraud. A 2024 Institute of Internal Auditors study found that anomaly detection reduces erroneous payments by up to 35%.
• Benford’s Law: This mathematical principle predicts the expected distribution of leading digits in financial data, where lower digits (e.g., 1) appear more frequently than higher ones. Deviations from this pattern can indicate manipulated or fraudulent data. Applying Benford’s Law to invoice amounts can flag suspicious entries. A 2023 Journal of Forensic Accounting paper reported that this method identified 85% of fraudulent invoices in a controlled study.
• Duplicate Payment Detection: Algorithms can scan payment records for duplicate invoice numbers, amounts, or supplier details, preventing costly errors. For example, a system might flag two payments of $5,000 to the same supplier on the same day. The 2024 APQC report notes that automated duplicate detection reduces such errors by 90%.
• Three-Way Matching: This process ensures that purchase orders, receipts, and invoices align before payment is authorized. Data analytics can automate this, flagging discrepancies like mismatched quantities or prices for review. A 2024 GEP survey indicates that automated three-way matching cuts payment errors by 50%.
• Machine Learning Models: These models learn from historical AP data to identify patterns of legitimate transactions and flag anomalies. For instance, a model might detect payments to a supplier made on unusual days or in round amounts, which could indicate fraud. A 2024 McKinsey report highlights that machine learning detects 95% of irregularities, compared to 70% with traditional methods.

By integrating and automating these data-driven approaches into your clean(-er) dataset, businesses can transform their AP processes into a proactive defense against irregularities, catching issues early and preserving financial integrity.

Solutions to Mitigate AP Irregularities

With a clear understanding of how to detect irregularities, businesses can implement targeted strategies to prevent them and strengthen their AP processes. By addressing root causes and leveraging technology, organizations can enhance accuracy, efficiency, and security. Below, we outline key solutions, supported by industry insights and real-world applications:

• Automation: AP automation software digitizes invoice capture, matching, and payment processes, significantly reducing human error. A 2024 Rillion case study showed that a global manufacturer cut invoice processing time by 50% and costs by 75% through automation, while a U.S. hospital reduced errors by 60%.
• Improved Processes: Streamlined workflows, such as standardized approval protocols and three-way matching, prevent discrepancies. Regular updates to supplier data ensure payment accuracy. The 2024 Medius report notes that optimized processes cut AP errors by 40%.
• Fraud Detection: AI and analytics tools, such as those using Benford’s Law or anomaly detection, flag suspicious transactions in real time. The 2020 Stampli guide highlights that automation reduces fraud risk by 70% through continuous monitoring. The clean(-er) data requirement has to be handled first though.
• Training and Controls: Educating AP staff on fraud prevention and best practices is critical. Implementing controls like segregation of duties and regular audits deters misconduct. The 2024 NetSuite guide found that 85% of fraud cases involve behavioral red flags, underscoring the need for training.
• Unified Platforms: Platforms like CostBits integrate data from procurement, AP, and accounting systems, providing real-time visibility into transactions and effectively clean data for in app-analysis or to feed other inhouse or external analysis engines. 

These solutions, when combined with data-driven detection, empower businesses to transform their AP processes into a strategic asset, minimizing risks and maximizing efficiency.

The Path Forward

As regulatory pressures intensify and financial complexities grow, addressing AP irregularities is a strategic  imperative.

At CostBits, we empower businesses with tools to highlight where to streamline AP and procurement processes. Our platform create the “clean data repository” so critical to delivering real-time insights, ensuring accuracy, compliance, and significant savings. Ready to safeguard your AP flow?


Don’t let missing data hold your business back. Explore our top 20 free tips for rapid supplier cost reduction or contact CostBits to learn how our platform can unlock the full potential of your invoice data.