Procurement fraud is likely one of the oldest frauds that companies must confront.
In a typical procurement fraud scenario, the vendor is awarded the contract, typically well above market prices; the procurement manager receives cash, material goods or other benefits in exchange for awarding the contract. A vendor could provide many types of services to a company such as raw materials, manufacturing of goods, transportation, logistics, independent sales and distribution of products, warehousing, consulting or other services.
Procurement fraud is considered one of the most common frauds perpetrated by managers operating in emerging markets, and the big losers of this fraud are businesses and their shareholders. Companies lose billions of Rands annually because companies are not paying the fair market value for the services and goods sold by vendors.
There are various reasons why procurement fraud is increasing, such as:
- Higher staff turnover
- Increased outsourcing and offshoring of procurement
- Purchasing from new, less regulated markets
- Increasing complexity of products and services purchased
- Increasing complexity and automation of the procurement process
- Increased collaboration between businesses and increasing use of shared service centers.
Good supplier relationships are crucial to the smooth running of a business as they enable it to operate efficiently. However, they are susceptible to fraud due to:
- Pressure to pay on time or early
- Tighter margins – both purchaser & supplier
- Procurement staff doing more with fewer resources
- The increasing velocity of invoicing and other related documents.
- Complexity working with global suppliers
- New payment technologies
- Acquisitions and mergers in your supply chain.
Procurement fraud can be difficult to detect because some of it is particularly subtle, which can be harder to investigate.
To be continued…
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