Procurement Fraud Is on the Rise; Here’s How to Stop It

Operational uncertainty remains an obvious, if persistent, challenge for middle-market firms. This would be enough to derail even the best-laid plans if it happened in a silo, but this operational uncertainty is one that fraud within the procure-to-pay (P2P) cycles of mid-market firms can significantly exacerbate — and frequently does.

The latest February data from PYMNTS Intelligence’s 2025 Certainty Project reveals that these challenges are particularly pronounced for mid-market companies operating in high-uncertainty environments, which report 87% higher customer losses due to fraud compared to their low-uncertainty counterparts.

This makes standing up an effective procurement fraud defense imperative for growth-oriented businesses.

With leaner resources than large enterprises but more complexity than small businesses, mid-market firms often navigate a precarious balance between efficiency and risk management. Their operational models often leave them caught in a gap — which, when combined with increasing regulatory pressures and evolving fraud tactics, creates an environment ripe for operational disruptions.

Many middle-market firms rely on traditional antifraud strategies such as employee training, manual audits and reactive response measures. While these methods have merit, they are labor-intensive and prone to human error. At the same time, manual processes can create bottlenecks, slowing down operations and adding to administrative costs.

The solution? Automation technologies, such as artificial intelligence (AI) and machine learning (ML), offer a proactive approach to fraud prevention by analyzing patterns, identifying anomalies and flagging suspicious activities in real time.

Automated systems enhance procurement fraud prevention by streamlining vendor screening, improving due diligence and minimizing human error. Firms that have implemented automated fraud detection report improved outcomes, streamlined processes and reduced financial strain.

Approximately 71% of respondents in the PYMNTS study cited automation as the most impactful strategy for reducing fraud, compared to 27% which reported staff training as the most impactful.

After all, not only does automation help to improve accuracy and efficiency, but it also provides scalability. As a company grows, automated systems can adapt to handle increased volumes of transactions without a proportional increase in administrative overhead.

While the advantages of automation are clear, some firms remain hesitant due to concerns over costs, implementation complexity, and potential disruptions to existing workflows. Experts advise that starting small — for example, by automating specific, high-risk processes — can provide measurable results and build confidence in broader adoption.

Read more: Fraud in the Procure-to-Pay Cycle Hits Middle-Market Firms Hard

PYMNTS Intelligence also found that the impact of fraud on mid-market businesses varies across industries. Sectors such as technology and services, which heavily rely on seamless supply chains and financial operations, are disproportionately affected by third-party fraud and payment processing issues.

In contrast, industries focused on goods report higher incidences of supplier fraud and deficiencies, reflecting their dependence on physical procurement processes.

The data shows that to mitigate fraud risks effectively, middle-market firms should consider the following strategies:

1. Invest in Automation: Allocating resources towards automated fraud detection systems can yield significant long-term benefits by reducing fraud-related losses and operational inefficiencies.
2. Enhance Technical Expertise: Developing in-house technical skills or partnering with specialized service providers can ensure the effective implementation and maintenance of automated systems.
3. Adopt Real-Time Monitoring: Implementing real-time tracking and validation tools can help identify and address fraudulent activities promptly, preventing potential losses.
4. Customize Solutions Based on Industry Needs: Understanding industry-specific fraud patterns allows firms to tailor their fraud prevention strategies effectively.
5. Continuous Evaluation and Adaptation: Regularly assessing the effectiveness of fraud prevention measures and adapting to emerging threats is crucial in maintaining robust defenses.

By investing in advanced technologies and fostering the necessary expertise, growth-focused mid-market firms can navigate operational uncertainties more effectively and safeguard their financial health.

The post Procurement Fraud Is on the Rise; Here’s How to Stop It appeared first on PYMNTS.com.