Procurement fraud - a growing white collar crime

Procurement fraud is costing companies millions of dollars as organisations struggle to protect themselves against this common white collar crime. 

False transactions and theoretical contracts are just one way that white collar criminals are deceiving procurement organisations.

The most common type of procurement fraud occurs when an employee is working with an outside vendor and creates bogus or inflated invoices, services or products that are never delivered or produced.

According to the Association of Certified Fraud Examiners (ACFE), the world’s largest anti-fraud organisation, nearly 5 percent of an organisation’s annual revenue, on average, is lost due to occupational fraud.

The ACFE applied this percentage to the estimated 2009 Gross World Product and it translated to a possible global fraud loss of more than $2.9 trillion.

The problem with this type of crime is in the difficulty of discovering or actually knowing that it is going on. Below are some starting points for how supply chain organisations can protect themselves:

1. Be aware of the issue
Research the issue and find statistics proving the importance of raising company awareness on procurement fraud.

2. Implement policies
Implement solid policies that give you visibility into your procurement processes. It should be emphasised to your team that procurement fraud will not be tolerated in any fashion.

3. Educate your team about fraud prevention
The ACFE’s 2010 Report to the Nations discovered that most occupational frauds lasted 18 months before being detected. Approximately 40.2 percent were detected through an employee tip, while only 0.8 percent came from IT controls and internal audits caught only 13.9 percent.

On top of these statistics is the fact that in Australia, fraud is believed to be one of the most under-reported offences, with fewer than 50 percent of incidents being reported to police or other authorities (Australian Institute of Criminology).  

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