How to Identify and Avert Procurement Fraud

Author: Peter Goldmann - CFE
Procurement fraud is nothing but illegal conduct with which the offender gets an advantage, avoids a responsibility or causes damage to the organization he is working for. The offender could be the owner, an employee, statutory board member, a public figure, an official or a vendor involved in the buying of services, assets or goods for the organization affected. The schemes for procurement fraud are common and it includes corruption, conflict of interest and billing schemes. There are three basic phases of procurement frauds: procurement phase, receiving phase and payment phase.
Procurement Phase
The frauds under procurement phase includes: Dishonest Purchasing Staff (Billing/sham supplier schemes), Senior Management (Overriding controls/Bid-rigging), Department heads (Ordering unneeded goods & services), P-Card holders (Making unauthorized purchases).
Receiving Phase
The frauds under receiving phase includes: Dishonest Shipping/Receiving Employees, AP Staff (Diverting deliveries), Collusive parties –Purchasing or AP staff with suppliers.
Payment Phase
The frauds under payment phase includes: Dishonest AP staff, Fraudulent suppliers/billing, Check fraudsters (Internal AND External).
Procurement Fraud Risks
The common procurement fraud risks involve, external and internal supplier schemes (double billing; sham supplier schemes by insiders OR outsiders), collusion between procurement and suppliers, P-Card Fraud: External versus Internal, abuse of bidding process (Bribery/Kickbacks) and unauthorized purchases by procurement staff.

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