- Introduction
Procurement fraud refers to manipulation and deception in the procure-to-pay process. Procurement fraud is perpetrated by employees, contractors or vendors/suppliers either acting alone or in connivance with each other to defraud the organization.
Fraud in procurement can drain money and resources. Procurement fraud affects every company irrespective of size, region, or industry. Despite the large scale of procurement fraud, empirical data and statistics about procurement fraud and losses to businesses are not available. Rather, information about procurement fraud schemes is largely based on anecdotes and perceptions. There are several misconceptions about procurement fraud as follows:
- Procurement fraud is limited to government contracting or tender
- Procurement fraud is not a major issue for entities that have a robust external audit function
- Compliance with internal controls eliminates risk of procurement fraud
The above misconceptions and perceptions (in the absence of empirical data) can prove costly and companies must take adequate steps from becoming victims of procurement fraud. The nature, extent and volume of procurement is prone to various fraud schemes and companies should take proactive measures to tackle procurement fraud.
2. Fraud schemes
Some of the common procurement fraud schemes are as follows:
a) Fictitious Vendors
Fictitious vendors (i.e., vendors that do not exist) are created and payments are made to such vendors based on invoices received from such vendors.
b) Fictitious Invoices
A variation of the fake vendors wherein the vendors are genuine but some of the invoices from genuine vendors are fictitious.
c) Padding invoices and Overcharging
Information with respect to quantities supplied or rate per quantity is manipulated and vendors overcharge the entity by padding quantities and/or rates.
d) Bid rigging
Tendering process is influenced by colluding with others to fix prices or decline to bid thereby influencing allocation of tender amongst a close knit group of vendors (often vendors in the same group or related parties).
Concluding remarks
Although procurement fraud comes in various forms, companies can safeguard themselves through preventive techniques using a combination of both human and artificial intelligence. To know more, please connect with us at contact@fraudopedia.co.in