What is Procurement Fraud?

Why does Procurement Fraud Occur?

Procurement fraud can cost your organization huge amounts of money, time, and other important resources. Fraud occurs for a multitude of reasons; “stealing money or property by a person who is in a position of trust, such as an employee or an agent” which is known as embezzlement, sending customers certain goods that were not of the same quality as the originally ordered goods, which is known as “product substitution”, and most commonly, charging customers for goods or labor which they had not previously agreed on. Usually these types fraud occur because an employee on one or both ends of the agreement are colluding for some type of monetary gain by exploiting loopholes in the purchasing process of their respective organization’s.

What is the Impact of Procurement Fraud?

PWC states that in 2016 “29% of organizations worldwide have been victims of procurement fraud” and even more astonishingly, the Department of Defense, Inspector General estimates that there is an annual “$42 billion amount lost to procurement fraud nationwide every year in the US” alone. These stats indicate that not only is the issue of procurement fraud extremely impactful for organizations, it is running rampant across all industries. On a more finite level fraud creates distrust within your organization and will undoubtedly affect your company’s spend culture. If there are instances of fraudulent purchasing practices, the executives in charge of purchasing will tighten their control around what is purchased and who can be involved in that purchase process.

Stopping Procurement Fraud

In order to put a halt to procurement fraud your organization should be outfitted with every tool possible to monitor spend management. Having a solution that allows your employees to communicate their purchases directly with your financial controller encourages transparency and legitimacy. Moreover, an e procurement solution will assist in being able to budget and plan your spend more accurately so you are able to see exactly why something is being purchased, the cost associated with said purchase, and the intended vendor. With a digital procurement solution you are also able to have your employees provide your purchasing team with a rationale for their purchase. If fraud does occur, you will be able to audit the fraudulent purchases and deal with that employee directly. Being able to generate purchase orders and send them to vendors, be it for goods or services, also creates a digital purchase papertrail.