In accounts payable, which situation signals a potential fictitious vendor?

• A. Invoices from vendors with verifiable addresses and matching banking details.
• B. Vendors with long-standing relationships and complete documentation.
• C. Invoices that include standard supporting documents and consistent terms.
• D. Invoices from vendors with unverifiable addresses, mismatched banking details, and lack of supporting documentation.

Answer: (D)

In accounts payable, the biggest warning signs of a fictitious vendor are when the vendor’s information can’t be verified and there’s little or no documentation to back up the invoice. If an invoice comes from a vendor with an unverifiable address, bank details that don’t align or aren’t consistent, and a lack of supporting documents, it suggests a setup designed to divert funds or commit fraud. These are classic red flags because legitimate vendors typically have verifiable contact information, accurate banking details that match their records, and adequate documentation to support the transaction.

By contrast, invoices from vendors with verifiable addresses and matching banking details, or vendors with a long-standing relationship and complete documentation, or invoices accompanied by standard supporting documents and clear terms, are consistent with ordinary, legitimate business arrangements. They indicate that the vendor is real and that the transaction has a proper audit trail, which reduces the risk of fictitious activity.