The greatest threats to your company’s bottom line might not come from external factors, but internal ones like supplier fraud.

We’re all on the lookout for external threats to our companies all the time. We install security camera systems to monitor the shelves in our warehouses, and we hire security personnel to follow shoppers around our retail stores. But while that is certainly a great idea to identify and neutralize threats to our companies from the outside, there may be even bigger threats already inside your organization.

One of those threats is procurement and supplier fraud, and it could be costing your company a large amount of money already.

What Is Supplier Fraud?

Supplier and procurement fraud is a blanket term that can describe many different types of fraudulent activities:

  • In some cases, your procurement officials work with shady suppliers to create inflated invoices or purchase inferior or second hand items instead of high quality or new items, and then split the profits from the inflated bills.
  • Other cases may involve your procurement officials creating fictional vendors and invoices, and then making payments to their own bank accounts using those vehicles.
  • Suppliers may offer to bribe procurement officials to choose their products and services at higher prices than a competitor’s.
  • Employees may manipulate the account of a bona fide vendor, generating a second invoice for the same product or service, and siphoning funds into their own account.
  • Employees may collude with service providers to pay inflated hours on bills, and split the difference with the offending contractor.

Sometimes, this type of fraud is the work of just an employee, sometimes there are more people involved, and occasionally, the vendor themselves are part of a supplier fraud scheme. Whatever form the fraud takes, however, it always costs the victim company a lot of money.

How to Prevent Procurement Fraud

Procurement fraud is insidious and could be happening under your nose right now, but there are methods of preventing and combating it. Those methods include:

  • Implement a system of checks and balances in your organization.
  • Avoid having one person responsible for procurement and payments, which would make creating and executing false payments much easier to cover up.
  • Make sure that everyone involved in the procurement process in your company has undergone a thorough background check and has no criminal record.
  • Avoid single supplier or single contractor relationships wherever possible.
  • Conduct spot checks on procurement processes.
  • Be on the lookout for duplicate amounts on checks or payments.
  • Make sure that goods that are billed to your company are actually received. Separate the receiving function from your procurement department.
  • Use inventory management tools to track all orders, deliveries, and stock, and look for patterns in stock that disappears. Sometimes, it’s not disappearing at all. It simply was never received.
  • Whenever possible, use electronic procurement and accounting tools, and avoid giving anyone the ability to delete invoices, purchase orders and other documents.

Preventing procurement or supplier fraud is an ongoing process, that requires constant vigilance from managers and company owners.

It starts with proper vetting of all procurement and accounting staff, and the implementation of carefully thought out processes. With the right tools and the right people, however, you can prevent this type of theft from occurring in your company, or at the very least, spot it and stop it quickly.

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