Purchasing fraud alludes to infringement and violations of the procurement procedure and can happen in public or private sector organizations. The bidding process is particularly vulnerable to fraud and can be hard to detect, especially within large organizations with complex procurement operations.
Procurement is the obtaining of goods and services for an organization, and the greater part of the business spend courses through the office. The procurement department is in charge of arranging contracts and acquiring every one of the merchandise and ventures required by the business. Procurement practices ought to be checked to uncover any warnings.
Explanations behind procurement fraud include misrepresentation perceived opportunity without consequence coupled with greed, desperate need of money, quid pro quo for favours or opportunities, benefiting family members or friends, or even malicious sabotage.
The Annual Fraud Indicator 2012, published by the National Fraud Authority (NFA), found procurement fraud made up the largest proportion of the overall total lost. It cost UK central government £1.4 billion and local government £890 million. The report cited false and ‘double-invoicing’, price fixing, altering payment details and giving kickbacks to determine contract awards as examples of procurement fraud.
In one particularly shocking case, a company sold fake bomb detectors to Iraqi authorities, at a financial cost of £55m, but the real damage was human injury and suffering. As seen in the incidents, the very people who were in charge of ensuring fraud free activities were the perpetrators of some of the biggest frauds. A fraud can not only have serious implication on an organization’s reputation and finances but it can also endanger human life, as seen in the fake bomb detectors case.
Even though various organization and supplier transactions are being automated using eProcurement technology, human intervention is a must. This is where the chances of fraud amplify. What’s needed is stringent anti-procurement fraud system that can detect and help organizations prevent such frauds. Include clauses in contracts be it for suppliers or the employees, that will take serious actions if caught in a scam.
Awareness of this issue is required right across the mid to senior level of the organisation, not exclusively within the procurement department. Which begs the question:
How well does your organisation manage fraud?
Here are ten ways to check your procurement fraud detection and prevention capabilities:
Have you clearly identified procurement fraud indicators/red alerts?
Are you aware of common corruption and fraudulent practices, such as schemes, bribes and kickbacks, false, inflated or duplicative invoices?
Have you adopted techniques for fraud detection, prevention, and evaluation and move from reactive fraud investigation to proactive anticipation, detection, prevention and deterrence of fraud risk?
How well do you deal with collusion among contractors and between contractors and employees, such as collusive bidding (bid rigging), bid rotation, or bid suppression?
What are your methodologies for detection of collusion?
Are you well aware of fraudulent activities in tenders and contracts such as bid manipulation, unbalanced bidding, leaking of bid data, bid splitting and unjustified Sole Source Awards?
Do you know how to manage a fraud investigation?
Have you developed fraud and corruption control guidelines?
Do you have a fraud prevention policy?
Do you have a framework for a Procurement Code of Conduct?
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