The Different Types of Procurement Fraud

Dec 2, 2021

Fraud

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Procurement fraud is an arrangement between the procurement manager or other designated officials who award contracts to a vendor in return of favours. As a result of this unethical transaction, businesses suffer billions of rands in loss.

1. Employee/Supplier Collusion

The most common type of procurement fraud is when an employee arranges for a good or service with a vendor at either a higher cost than needed, or with a cheaper product. That vendor then “kicks back” money or gifts to the employee for the inflated deal terms.

2. Conflicts of Interest

This usually happens when an employee who is responsible for vendor selection picks a company with some kind of relationship to them. This is okay just as long as the company has gone through a proper bid process, the selected and they meet the qualification criteria. But with procurement fraud being such a common problem what usually happens is the employee that is responsible for the vendor selection just hands a deal or a contract to a family member or friend either as a favour or for to get a financial kick-back from them.

3. Fake Companies

If an employee creates a fake company and issues payments to it, those false costs all build up. When employees are engaging in this type of fraud they will make small payments so that they do not raise any alarms, and if a company doesn’t have a process to match invoices against purchase orders then it can be easy to get away with.

4. Inflated Bills Or Underdelivery

After the procurement phase, during the receipt of the contracted work, fraud can be committed either through the approval of inflated invoices or the acceptance of under-delivery. Underdelivery can be substandard work or failure to meet the agreed upon requirements. If an employee accepts subpar material, then that is a form of fraud , basically just as if they had approved of an inflated bill.

5. False Statements in Obtaining Contracts

When you make or accept false statements when obtaining a tender or contracts this is also a form of procurement fraud. This include misrepresenting a minority contractor or small business status, or a vendor making false statements of compliance. 

Should you need assistance with tackling procurement fraud happening with your organisation get in-touch with Uphando today!


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