Fraud in Procurement – Detection & Prevention

Detection & Prevention

Express* White Paper

*Express White Papers are Short & to the Point with Practicable Advice. It takes less than 5
Minutes to Read, but the Brevity is the Antidote that the Busy Procurement Executives &
Leaders Need Today.

©Purchasing & Procurement Center email: info@ppc-inc.com phone: +1-312-300-8968 1 of 4

 Fraud in Procurement – Detection & Prevention
As you probably know, procurement fraud is a severe offense and causes a lot of damage.
However, there are strategic ways to empower organizations to detect & prevent fraud.
In this express whitepaper we show how organizations can save revenue, improve brand
reputation, and promote an ethical workforce by implementing few strategies that are
simple, require little time and without spending any money.

How Much Is Lost to Fraud?

Overall estimates by The Association of Certified Fraud Examiners (ACFE) state that
companies lose up to 5 percent of revenue to fraud each year - that amounts to $3.7 trillion
on a global scale.
Corporate fraud investigators strive to eliminate fraud at corporate organizations. The scale
can get seen if a typical organization loses 5% to fraud each year. A ten-billion-dollar
company loses five hundred million in revenue that directly impacts the share price.

Examples of Corporate Fraud

Corporate frauds can be of many types. You can best understand it with some two situational
examples, as explained here.

Example 1
In a corporate office, a manager responsible for buying television sets made a deal with a
television manufacturer’s account representative. The Account Representative convinced
him not to negotiate a discount. As a result, the Account Representative got his bonus, and
he then shared half of the bonus with the Manager.
Situations like these may seem harmless but small amounts of fraud add up. Impacts may be
visible in the organization's share price. Corporations know this and are watching for fraud.

Example 2
A corporate employee may set up a fake supplier (for example- say Paperocity) in the
organization's Enterprise Resource Planning (ERP) system. The company pays invoices to
Paperocity's bank account, a bank account owned by the employee's brother. The
transactions may be in small amounts like 200 dollars in a month spread across multiple
company departments to avoid suspicion.

The Fraud Triangle - Why Do People Commit Fraud?

The 'Fraud Triangle' originated from Donald Cressey's hypothesis on fraud. Donald Cressey
conducted a study of fraud and found out three components common to those who commit
fraud; Pressure, Opportunity, and Rationalization.

©Purchasing & Procurement Center email: info@ppc-inc.com phone: +1-312-300-8968 2 of 4

 Fraud in Procurement – Detection & Prevention
He determined that majority (68%) commit fraud because of pressure, 18% when opportunity
arises, and 14% percent rationalize fraud.

Some examples of the three common components are:

Pressure:
An example of pressure is someone with gambling debts, and they need to find money as they
don't have money else; they'll be in danger. Internal pressures can be putting pressure to
succeed.
Opportunity:
A person in the position of authority and who may be less likely to be questioned may utilize
the opportunity.
Rationalization:
Some people convince themselves that it is morally okay to commit fraud. Some may
rationalize their actions by thinking that the company does not pay them what they're worth
and justify their fraudulent activities.

What Actions to Take to Prevent Fraud?

The truth is you cannot entirely prevent fraud, but you can reduce the probability of fraud
occurring in your organization. All employees in an organization can help prevent fraud.
In the next page you will notice Top 10 Actions to Prevent Fraud. Here though we are
including more details on 2 critical ways an organization can take the initiatives to prevent
fraud.

©Purchasing & Procurement Center email: info@ppc-inc.com phone: +1-312-300-8968 3 of 4

 Fraud in Procurement – Detection & Prevention
Establishing a Code of Ethics:
Research has shown that reminding people to be ethical near time to an opportunity to
commit fraud reduces the likelihood of the fraud.
You can ask your employees to sign a ‘Code of
Ethics’ every year.
Implement a Risk Register:
In this register, you can ask your employees
to add risks they may come across.
For example, when an operational buyer
spots a lack of separation of duties in any
section like supplying section, creating new
supplies in the system, and confirming receipt
of deliveries, they could add the specific risk
to the register.
Adding risks will help in addressing and
mitigating future fraud actions. Employees
will also be aware that there is a mechanism
to deter fraud and adhere to the code of
ethics.

Source: http://www.carrtegra.com/download-prevent-fraud/

What’s Next?
Take your and your team's skills to the next level with our Superior Online Procurement
Certifications & Full Suite of Procurement Trainings & E-Learning Featuring the Most
Extensive Catalogue in the Industry.

Discover How to Build World Class Skills Without Reading Books, Without Travelling &
Without Struggling! Email us at info@ppc-inc.com or schedule your Live Demo Below.

For Individuals! For Procurement Leaders & Teams!

Click Here to Schedule Live Demo for Click Here to Schedule Live Demo for
Procurement Certifications! Customized Learning!

©Purchasing & Procurement Center email: info@ppc-inc.com phone: +1-312-300-8968 4 of 4