Procurement fraud could drain money from your company’s bottom line. If you’re in charge of pushing your company’s procurement strategy forward, fraud can feel like a strong headwind blowing in your face. Not only does procurement fraud siphon money from the company, but it can also push your entire strategy off course.
However, procurement teams can avoid this two-front assault on their business’ bottom line. Learn about four procurement fraud schemes and how to prevent them.
4 Procurement Fraud Schemes to Watch Out For
Procurement fraud schemes come in various shapes and sizes, but these are four of the most common types to keep on your radar:
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Invoice Inflation and Duplicate Invoices
In one common finance and AP fraud scheme, suppliers will add extra charges or inflate invoice totals. In similar instances, suppliers may send duplicate invoices. One reason this scheme is difficult to identify is that it’s often perpetrated—purposefully or accidentally—by legitimate suppliers. If you’re not actively looking for irregularities and using technology to screen for errors, it’s easy for exaggerated invoices to slip through the cracks, for the company to pay extra, and for money to disappear from your company’s bottom line.
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Contract Noncompliance and Defective Pricing
Suppliers may intentionally or unintentionally avoid contract terms when a company’s spend under management and procurement’s spend visibility are low. In these procurement fraud schemes, suppliers will leave out agreed-upon discounts or add the wrong terms. For instance, a supplier may ask to be paid immediately and tack on penalties, even when your company agreed to different terms. These scams are difficult to identify if your procurement and finance teams cannot see how and where employees spend money.
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Misrepresentation Schemes
With misrepresentation schemes, a person or company will create non-PO invoices for a company that doesn’t exist. After they steal from your company, they disappear and make off with your organization’s funds. This type of fraud can easily go unnoticed if procurement teams are bogged down by inefficient processes and neglect supplier relationships.
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Bid Rigging or Price Fixing
In these schemes, competing suppliers will agree to align their prices to drive up costs for your company. In this scenario, two companies may agree to hike prices by an exorbitant amount, then kick back a portion of the extra profit to the competitor after one company wins the bid. If your employees skip your organization’s approved bidding procedures or purchase through unapproved channels, it’s easy for suppliers to get away with this scheme.
How to Prevent Procurement Fraud Schemes
Procurement teams can recognize and fight against these costly procurement fraud schemes by adopting the right technologies. Digitizing processes with a procure-to-pay (P2P) solution or using advanced SpendTech™ can increase spend visibility, giving companies a significant edge over fraudsters. Here are a few ways this technology can prevent procurement fraud:
Reduce Rogue Spend
One of the easiest ways to cut down rogue spending and boost spend under management is to adopt SpendTech™. User-friendly procurement tools include digital marketplaces that make it easy for employees to purchase goods and services through approved suppliers. This technology also captures spend data so procurement can ensure suppliers uphold contracts.
Boost Spend Visibility
A digital procurement solution can increase spend visibility in several ways. First, it encourages more employees to purchase through approved suppliers. Second, it feeds your procurement team clear spend data. That means procurement can easily see what suppliers the company works with, spot fraudulent suppliers, and flag any inconsistent actions.
Increase Digitally Enabled Suppliers
With a digital P2P solution, you can boost your digitally enabled suppliers. Advanced solutions will automate tasks and minimize the need for human input, freeing up your procurement team to focus on building stronger supplier relationships. These solutions also use machine learning to identify patterns in your P2P pipeline and spot suspicious behaviors.
Fraud-Proof Invoice and PO Management
P2P solutions can simplify purchase order (PO) management and invoice matching. Advanced spend management solutions will automate the PO management process, speed up approvals, and make it easy to put more spend on PO. That means procurement can find time to run pre-approval checks and supplier verifications. Top solutions will also include 2 and 3-way matching so you can easily see if POs are legitimate.
All the while, these systems also reveal in-depth spend, payment, and delivery information. That way, procurement can track everything the company is paying for, see what has been delivered, and track services rendered.
Discover More Ways to Sharpen Your Procurement Strategy
When left unchecked, procurement fraud threatens your company and your procurement team’s strategy. But with the right technology, you can identify fraud before it derails your cost-cutting initiatives.
Want to learn more about how technology can increase spend visibility and enable your procurement strategy? Download Spend Matters: The Evolution of Corporate Procurement Systems to learn about the technology that redefines what procurement teams can accomplish.
