Construction fraud: how fake invoices get paid, and the checks that stop them

Fraud can do serious financial damage to a business, but if you're in construction, it can be even worse. In the ACFE’s 2024 study of occupational fraud, the median construction case cost the business $250,000, well above the $145,000 median across all industries, and in 38% of those cases the money went out through invoices the business didn’t owe.

Our own data suggests why that’s so easy to do. In about one in three construction businesses using ApprovalMax, at least one bill in the past year was approved by the same person who had entered it, so nobody else saw it before it was signed off. Busy site offices fall into this habit easily, and that’s how fake or inflated invoices get paid.

The most reliable fix is running a second check before money leaves the business. That means the person who knows the job approves the bill, and a different person pays it. This guide explains how fake invoices get through in construction, what ApprovalMax data shows about where the gaps are, and the invoice fraud prevention steps that close them.

What is construction fraud?

Construction fraud is any deliberate deception that takes money from a construction project or business. It covers a wide range of methods, like inflated change orders, fake subcontractors, billing for materials that never arrived, payroll padding and stolen checks.

This guide focuses on invoice fraud, also called billing fraud or accounts payable fraud. That's where someone gets a business to pay a bill it doesn't owe. It's the type of construction fraud that a finance team can do most to stop, because every fake invoice has to pass through accounts payable before it turns into a payment.

Why construction businesses are exposed to invoice fraud and vendor fraud

Finance in construction can often be a complicated set up. Construction businesses pay a lot of different suppliers, often in large amounts, and often in a hurry. A few things about how the industry works make fake invoices easier to slip through:

• Lots of suppliers and subcontractors. A single project can involve dozens of vendors. New names on invoices are normal, so a fake vendor doesn't stand out.
• Approvals happen away from the office. Project managers and supervisors are on site. They often approve by email or by text, or tell the office "it's fine" without seeing the invoice.
• Small office teams. In many construction businesses, one or two people handle bookkeeping, bills and payments. That makes it hard to split the work between different people.
• Pressure to pay quickly. Subcontractors need paying to keep work moving, so bills get rushed through.
• Checks are still common. Many subcontractors still ask to be paid by check. Checks were the payment method most targeted by fraud in 2025, reported by 58% of US organizations in the AFP survey.

None of this means construction businesses are careless. It means the normal way of working leaves gaps that a fraudster, inside or outside the business, can use.

How a fake invoice gets paid in a construction business

Most invoice fraud follows the same path. It helps to see each step, because each one is a point where a check can stop it.

1. The invoice arrives. It might be a fake invoice from a made-up vendor, a real supplier's invoice with a higher amount, or a duplicate of an invoice already paid. It often arrives by email, sometimes from an address that looks almost identical to a real supplier's.
2. Someone enters it into the accounting system. If the person entering it is also the person committing the fraud, there's no one to question it.
3. Someone approves it. If the same person who entered it can also approve it, or if approval is a quick "yes" by email, the invoice passes without anyone checking it against what was ordered or delivered.
4. Someone pays it. If the person who approved it can also pay it, the money leaves the business. Nobody else has seen it.
5. Nobody notices for months. In the ACFE's 2026 study, fraud schemes ran for about 12 months on average before they were found, and nearly half were uncovered by a tip rather than a control.

The pattern is the same each time. The fraud works when one person controls more than one of these steps.

Invoice fraud detection: what ApprovalMax data shows about construction

We looked at anonymized ApprovalMax data on bills and purchase orders approved between October 2025 and September 2026, and compared construction businesses with businesses in other industries.

1 in 3 construction businesses approved a bill with no second check

In 34% of construction businesses, at least one bill in the year was approved only by the person who created it. For businesses in other industries, the figure was 28%. Across all ApprovalMax customers, about 1 in 20 bills was approved this way.

A bill approved by the person who entered it has had no second check. It doesn't mean the bill was fraudulent, but it means nobody else could have caught it if it was.

First bills from new suppliers are about twice the size of repeat bills

In construction, the first bill a business receives from a new supplier is typically about twice the size of later bills from the same supplier. Almost a quarter (23%) of construction bill value went to suppliers billed for the first time that year.

That matters for vendor fraud. A fake vendor's first invoice is a new supplier's first bill, and it's often the one that carries the biggest amount.

About 1 in 8 purchase orders is billed above the approved amount

Across ApprovalMax customers who match bills to purchase orders in Xero, about 1 in 8 purchase orders ends up billed above its approved amount. When it happens, the bills typically come in 19% over. Construction businesses are no exception.

Not every overrun is fraud. Extra work gets agreed on site all the time. But if a bill above the approved amount goes straight to payment, an inflated invoice or a padded change order goes with it.

Segregation of duties: the control that matters most

Segregation of duties, also called separation of duties in accounting, means no single person controls a payment from start to finish. One person enters a bill. Someone who knows the job approves it. A different person pays it.

It's the most important control against accounts payable fraud, because it means a fake invoice has to get past at least two people. In the ACFE's 2024 study, a lack of internal controls was the main weakness in 32% of fraud cases.

In a small construction office, full segregation of duties can feel impossible. If one person runs the books, you can still split the steps:

• The office manager enters bills, but the project manager approves them.
• The owner, or a second person, releases payments.
• Nobody approves a bill they entered themselves.

Invoice fraud prevention: 6 checks that stop fake invoices before they're paid

These steps help prevent invoice fraud without slowing down how you pay subcontractors.

1. Make sure every bill is approved by someone other than the person who entered it. This closes the gap that ApprovalMax data found in 1 in 3 construction businesses.
2. Have the person who knows the job approve it. The project manager is the person who can say whether the work was done and the materials arrived.
3. Keep payment separate from approval. The person who approves a bill shouldn't be the person who sends the money. Here's where bill pay usually breaks.
4. Check bills against the approved purchase order or contract. If a bill comes in above the approved amount, send it back for approval before it's paid.
5. Take extra care with new suppliers. Check that a new vendor is real before paying their first invoice, especially if it's a large one.
6. Confirm any change to bank details by phone. Call the supplier on a number you already have, not the number on the email asking for the change.

How ApprovalMax helps construction businesses keep approval and payment separate

ApprovalMax adds approval workflows to QuickBooks Online and Xero. With ApprovalMax Pay, construction businesses can approve and pay bills in one place:

• Bills are approved before they can be paid, so a fake or inflated invoice has to get past an approver before any money moves.
• Payers are set up separately from approvers, and each payer signs in with two-factor authentication. The person who approves a bill isn't automatically the person who pays it.
• Payment batches have their own approval step, which can route by vendor and amount, so a large or unusual payment gets a second look before it's sent.
• Every approval and payment is recorded in an audit trail, so you can see who approved what, and when.

No software can make a business fraud-proof. But approvals that happen before payment, by the right people, make invoice fraud much harder to get away with.

Frequently asked questions

What is construction fraud?

Construction fraud is any deliberate deception that takes money from a construction business or project. Common examples include fake invoices, inflated change orders, billing for work or materials that were never delivered, payroll padding and check fraud.

What is invoice fraud?

Invoice fraud is when someone gets a business to pay a bill it doesn't owe. The invoice might come from a fake vendor, be a real supplier's invoice with the amount increased, or be a duplicate of a bill already paid.

How common is fraud in the construction industry?

In the ACFE's 2024 study of occupational fraud, construction cases had a median loss of $250,000, higher than the $145,000 median across all industries. Billing schemes, which include fake and inflated invoices, appeared in 38% of construction cases.

What is segregation of duties in accounts payable?

Segregation of duties means no single person controls a payment from start to finish. One person enters a bill, another approves it, and a different person pays it. A fake invoice then has to get past at least two people.

How can a small construction business prevent invoice fraud?

Make sure nobody approves a bill they entered themselves. Have the project manager approve bills for their jobs, keep payment separate from approval, and confirm any change to a supplier's bank details by calling a number you already have.

What are the warning signs of a fake invoice?

Warning signs include a new vendor with a large first invoice, an invoice that doesn't match a purchase order or contract, a request to change bank details, an email address that's slightly different from the supplier's usual one, and pressure to pay urgently.

About the data

ApprovalMax analyzed anonymized, aggregated data on bills and purchase orders approved between 1 October 2025 and 30 September 2026, from organizations that allow data access. Construction businesses are identified by industry in our CRM. The figure on bills approved only by their creator is based on 847 construction organizations and more than 20,000 organizations in total, across Xero and QuickBooks Online. The new-supplier and purchase order figures cover organizations using Xero. A new-supplier bill is the first bill an organization has ever received from that supplier in ApprovalMax, and organizations with less than six months of history are excluded. A purchase order overrun is counted when the bills matched to it exceed its value by more than 1%. Percentages are rounded to whole numbers.

Third-party figures: ACFE, Occupational Fraud 2024: A Report to the Nations and Occupational Fraud 2026: A Report to the Nations; AFP, 2026 Payments Fraud and Control Survey.