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How to prevent procurement fraud

BlogYour business By Duncan Khoury – 12 April 2021

Although preventing procurement fraud is difficult, it’s by no means impossible. A company can take a variety of preventative measures to protect against procurement scams, some of which are surprisingly simple to implement. They range from making sure there are multiple eyes on procurement processes to creating a transparent culture around your company’s procurement in general. 

But before we talk in depth about identification and prevention, let’s go back to the basics. 

What is procurement fraud? 

Simply put, procurement fraud refers to any financial or other dishonesty in the procurement process of a company. Sometimes this may be for an individual’s personal gain. Other times, it’s to create a balance sheet loss. And in rare cases, it’s part of a more extensive scam or web of corruption. 

Types of procurement fraud

There are many types of procurement fraud and scams. The specific possibilities are endless, but most schemes can generally be broken down into these categories. 

  • bribes and kickbacks 
  • bid manipulation
  • variation abuse 
  • billing fraud or false invoicing
  • undisclosed interests 
  • personal procurement abuse.

What are the signs of procurement fraud?

There are many red flags for procurement scams – however, there’s no one sign to look out for, as there are so many types of fraud. 

Billing fraud and false invoicing, in particular, can be very hard to spot without a complete audit. 

That said, one thing that all business owners can look out for is employee indifference. Although this can be highly subjective, when the person responsible for procurement seems cagey, overly protective or nonplussed about a supply or distribution chain they manage, you may want to dig around. 

For example, imagine that someone raises an issue about a company you’re supplying to, sudden price decreases or significant invoice variations. If your procurement manager seems uncharacteristically nonchalant about any of these, that could be a huge red flag. 

That’s because, in fraud situations, the procurement manager is commonly the person who stands to profit most from these types of purchasing manipulations. This could be because they’re accepting bribes or kickbacks, or because they have a personal, undisclosed interest in the procurement scam. 

Other signals to look out for are constant variations in invoices or generalised expenditure and decreased quality control of purchased materials.

How to prevent procurement fraud

There are a few ways to prevent procurement fraud. The simplest is to make sure that several people or departments are involved in the sales and procurement process. Although it does occasionally still happen, a scheme that involves a large number of employees working together is rare. 

Most commonly, however, fraud is an opportunistic crime. That means removing the opportunity is key. 

  1. Consider introducing an additional approval process for orders over a certain amount, or assigning someone to identify and regulate the vulnerable steps in your processes.
  2. Encourage a culture of transparency by implementing formalised procedures and processes that ensure a range of eyes view and approve all deals and transactions.
  3. Question price increases and formalise a process to ensure any changes are examined, logged and accepted by more than one party or team.
  4. Educate your staff to recognise the signs of procurement fraud, both internal and external. And introduce an official process to deal with concerns or complaints in this area.

Use a payment platform that has supplier verification built-in. Our Supply Chain Platform keeps track of all of your payments and documentation material in one place. It also ensures that any company you send money to – or receive money from, is vetted, and this significantly improves your supply chain visibility.

Considering a supply chain platform? 

When you use the Octet Supply Chain Platform, you’ll benefit from the transparency of a standard and secure payment process. One that both reduces the initial opportunity for all types of fraud, and increases visibility around any payments your company makes. 

Plus, the Octet Platform offers a clearly articulated supply chain process: a seven-step system that ensures invoicing, authorisation and payment all happen quickly and safely. And most importantly, it keeps everything fully transparent at every step of the process. 

Even if procurement fraud isn’t a current concern for your business (maybe due to organisation size or other factors) there can still be great benefits to be found in both automation and increased transparency of your supply chain finance and payments.

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Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.