Preventing procurement fraud

A recent ACFE survey looking at the effects of COVID-19 found that 68% of respondents had experienced or observed an increase of fraud and 93% expected a further increase over the next 12 months 1. The survey highlighted the top five fraud schemes in the wake of COVID-19, identifying fraud by vendors and sellers and payment fraud as high risk.

COVID-19 has created the perfect storm of some suppliers who are desperate for work/revenue coupled with some employees who are looking to secure or increase their income, therefore escalating the fraud risk posed from external and internal parties. Recent examples we have seen:

  • Undeclared relationships, arrangement and transactions between employees and suppliers – employee motivated by kickbacks or an undeclared ownership interest takes advantage of weaknesses in the procurement process to ensure suppliers are awarded work.
  • Suppliers looking for opportunities to inflate their prices and margins or to charge for goods/services not provided.
  • Misuse of credit cards.

The ACFE Survey found that preventing, detecting and investigating fraud had become more difficult in the COVID-19 period.

In this difficult and unprecedented business environment it is essential to get the basics right, as this goes a long way to managing the risks of procurement fraud. The following are selection of the main controls to consider:

  • Segregation of duties – in an environment where organisations are looking to reduce staff there is a risk that segregation of duties will be compromised. Businesses need to avoid circumstances where an employee can both place an order and authorise the invoice for payment.
  • Reporting channels – encourage employees to report their concerns and/or any red flags and regularly tell them where/to whom to report these concerns.
  • Consider your policy framework – ensure that the message of acceptable and unacceptable conduct is clear and that employees are aware of this.
  • Invest time in your employees – Vigilant employees with a good awareness to the risk of fraud who are encouraged to do the right thing play a big part in the prevention and detection of fraud.

1 ACFE ‘Fraud in the wake of COVD-19: Benchmarking Report’