Procurement
fraud can be committed by employees acting alone or in collusion with vendors.
While fraudulent activities between suppliers/vendors and employees are not
uncommon, these transactions are unacceptable as they create a host of
challenges to the business if allowed to continue under the radar.
With
this threat, the onus is on organisations to create a culture where fraudulent
activities are easily identified and dealt with. explained that some of the
ways in which employees collude with vendors include:
·
Pass-through
schemes, where an employee or contractor sets up a business, which supplies
goods or services to client.
·
Conflict
of Interest, which occurs when an individual or organisation is involved in
multiple interests, one of which could possibly corrupt the motivation for an
act in the other.
·
Shell
company schemes, which enable an entity that has no active business and usually
exists only in name as a vehicle for another company’s business operations.
·
Tender
fraud, where the manipulation of the bidding/tendering process between
employees of the issuer of the bid and the bidding company lead to bribes and
kickbacks.
·
Billing
Schemes, when an employee generates false payments to himself/herself using the
company’s vendor payment system either by creating a fictitious vendor or by
manipulating the account of an existing vendor.
·
Bribery
and Kickbacks, when an employee participates in a bribery scheme when he or she
accepts (or asks for) payments from a vendor in exchange for an advantage.
·
Overbilling
is when a vendor pads invoices to charge the company for more goods than it
ships or to charge a higher price than agreed. This can be done in collusion
with an employee who receives a kickback, or by the vendor alone to defraud the
company.
To
prevent and detect vendor fraud, it is advisable to conduct thorough background
checks on new employees as well as implement checks and balances on payments to
vendors. In addition, it should become part of policy to separate the functions
of check preparer and check signer, rotate duties of employees in procurement,
conduct random audits of vendor files and conduct due diligence when setting up
vendors.
Contributed
by: Rudi Kruger, General Manager of Data Services at LexisNexis South Africa
