The three most common vendor fraud schemes targeting US finance teams are phishing and Business Email Compromise (BEC), internal employee fraud, and invoice fraud through compromised supplier accounts. Together, they cost businesses billions each year: in 2025 alone, BEC generated $3.046 billion in reported losses according to the FBI IC3 2025 Annual Report — and 86% of those losses were transmitted via wire transfer or ACH.
Imagine finding out that one of your trusted employees had spent years editing real vendor invoices to redirect payments into their own account. That’s exactly what happened at Miami University, which lost over $2.3 million to an internal fraudster. In this article, learn the most common types of vendor fraud and how to fight against it with Trustpair. Request a demo to learn more!
Key Takeaways
- Vendor fraud refers to schemes in which fraudsters impersonate or compromise real suppliers to divert business payments.
- The three most common vendor fraud schemes are: phishing/BEC attacks, internal employee fraud, and invoice fraud through compromised supplier accounts.
- In 2025, BEC attacks cost US businesses $3.046 billion in reported losses — a 10% increase from 2024 (FBI IC3 2025 Annual Report).
- New NACHA ACH fraud monitoring rules, effective March 2026, require all corporate entities sending ACH payments to implement risk-based fraud detection processes.
- The most effective defense is automated vendor account validation, which verifies bank details and company identity before every payment is processed.
- Trustpair has blocked 100% of payment fraud attempts for its customers since deployment.
What is phishing and Business Email Compromise (BEC) in vendor fraud?
Phishing emails involve the impersonation of a genuine third party in order to gain access to sensitive information or divert a payment. In the vendor fraud context, this is often called Business Email Compromise (BEC) or Vendor Email Compromise (VEC).
There are different levels of sophistication. Spear phishing involves intense prior research: fraudsters learn the name of the payment approver, the standard invoicing process at the target company, and even the real vendor’s email format, sometimes spoofing it to add legitimacy. Busy accounts payable staff are unlikely to spot the difference.
Pharming goes further, directing victims to malicious websites to harvest employee login credentials, giving attackers access to sensitive company data.
A new and growing threat is AI-enhanced phishing. According to Abnormal Security’s 2026 Attack Landscape Report, 63% of organizations report an increase in email attacks using AI-generated content — text with no spelling errors, accurate tone, and contextually appropriate personalization. In controlled testing, AI-generated phishing emails achieve a 14% click rate, nearly double the 8% rate for human-crafted attacks.
BEC attacks rose 38% year-over-year in 2025, with Vendor Email Compromise (VEC) — where fraudsters operate from inside a compromised supplier account — growing 67% in the same period (Abnormal Security).
These attacks exploit social engineering tactics. A classic example: fraudsters impersonate a known vendor mid-contract, submitting a realistic invoice for legitimate-sounding services. Because the relationship already exists and no verification controls are in place, the payment goes through unquestioned.
Many BEC attacks in the US target ACH payment flows. Fraudsters request that wire or ACH payment details be updated, routing funds to fraudulent accounts before the change is noticed. Learn more about how ACH payments work and how to stop ACH fraud.
What is internal employee fraud and how does it work?
Internal fraud, also known as employee fraud, is another example of vendor fraud.
In this scheme, an employee uses their system access to submit and conceal fraudulent invoices. They may siphon payments to a shell company they control, inflate the price of goods or services, or direct payments to an account they own. Because the employee knows exactly how invoices are normally processed, the fraud can be nearly invisible.
With hundreds or thousands of suppliers in a typical enterprise, accounts payable staff are unlikely to flag an invoice that looks and behaves like all the others.
The fraud triangle explains why employees commit fraud, through three converging factors:
- Motivation: financial pressure, resentment over compensation, personal debt
- Opportunity: authorized access to payment systems or vendor master data
- Rationalization: the use of a fake company makes payments appear legitimate and harder to trace
A textbook example: a financial controller at a mid-sized company noticed a supplier had shut down. She edited a prior invoice, replaced the bank details with her shell company’s account, and kept each invoice below the co-authorization threshold. The CFO, relying on trust rather than verification, never checked the details of established suppliers. The fraud went undetected for over a year.
Under NACHA’s new ACH fraud rules (effective March 2026), all corporate entities that originate ACH payments are required to establish risk-based processes to identify suspicious or fraudulent ACH entries.
This is a significant regulatory shift: businesses that previously relied on manual controls must now implement systematic monitoring. Trustpair’s continuous account validation directly supports compliance with these rules. Learn more about NACHA and the ACH network.
What is invoice fraud — and why is it so hard to detect?
Invoice fraud is a third attack vector. Here, the contact genuinely appears to come from a real supplier, because that supplier’s email account or communications have been hacked.
The fraudster, operating from inside the compromised vendor account, requests a change in bank account details. They may also submit invoices for goods or services never delivered. These attacks are particularly dangerous because companies are far less suspicious of established vendor relationships, concentrating their verification efforts on new suppliers instead.
Sade Telecom, an electrical network company, experienced this firsthand before partnering with Trustpair. Their accounts payable team received a payment detail change request from what appeared to be an existing supplier. Without an automated verification system, the team processed the request and sent subsequent payments to the fraudulent account. It was only when a genuine vendor issued a late-payment notice that the fraud was uncovered.
Following the incident, Sade Telecom implemented Trustpair to automatically validate payment details before every transaction. The result: 100% of subsequent fraud attempts were blocked, and the solution was live within 72 hours.
For US companies, this type of fraud frequently targets ACH transfers and wire payments — 86% of BEC losses in 2025 were transmitted via these rails (FBI IC3). The FBI IC3 recommends using secondary verification channels before processing any payment detail change, a process that Trustpair automates at scale. See the best ACH account validation software to evaluate your options.
How can you prevent vendor fraud?
Vendor account validation is the most effective way to prevent all three types of vendor fraud and to detect vendor fraud red flags before payments are released.
The process involves cross-checking the details listed on an invoice against international databases, including:
- Bank account details: account holder name, routing number, account number
- Company identity: legal name, ultimate beneficial ownership, sanctions and blacklist screening
By automating this validation at every payment cycle, businesses confirm they are paying who they believe they are paying, not fraudsters who have intercepted the transaction.
Manual checks are slow, incomplete, and inconsistent. Automated vendor account validation removes the human error and scales across your entire supplier base, whether you have 200 or 200,000 vendors.
In Summary
The three most common vendor fraud schemes are:
- Phishing/BEC: fraudsters impersonate vendors using social engineering and increasingly AI-generated communications to divert payments
- Employee (internal) fraud: insiders create shell companies or manipulate existing invoices to siphon funds
- Invoice fraud: real supplier accounts are compromised to request fraudulent payment detail changes
Protect your business by validating vendor accounts against verified databases in real time, before every payment. With Trustpair, you can meet NACHA’s new ACH fraud monitoring requirements while blocking 100% of payment fraud attempts.