Procurement fraud quietly erodes margins, strains supplier relationships, and damages brand trust. It doesn’t always look like a Hollywood sting; more often, it’s a pattern of small, repeatable leaks—false invoices, split orders, or undisclosed conflicts—that add up. The good news: most procurement fraud is preventable with the right mix of process discipline, controls, analytics, and technology.
What procurement fraud looks like
Common schemes include:
•Collusion and kickbacks: buyers steer awards in exchange for favors.
•Fake vendors and invoices: shell companies, duplicate billing, or inflated quantities.
•Bid rigging: restricted competition, tampered scoring, or rotating winners.
•Price inflation and contract drift: charging above agreed rates or sneaking in extras.
•Split purchases: breaking one buy into smaller orders to dodge approval thresholds.
•Conflicts of interest: undisclosed ties between employees and suppliers.
Why it happens
Fraud often arises when opportunity meets weak controls. Distributed teams, manual workflows, and opaque vendor data create gaps. Reducing opportunity—through governance, segregation of duties, and transparent data—lowers risk without slowing the business.
Build a layered defense
A robust anti-fraud program stacks preventive and detective controls:
1)Tone at the top and policy clarity
•Publish a code of conduct, conflict-of-interest (COI) disclosure, and gifts/hospitality policy.
•Train buyers, approvers, and AP teams on red flags and consequences.
•Provide a confidential whistleblowing channel and protect reporters.
2)Segregation of duties (SoD)
•Separate who requests, approves, creates vendors, receives goods/services, and approves invoices/payments.
•Limit superuser rights and require dual approvals for high-risk actions (e.g., payment runs, vendor bank changes).
•Enforce three-way match (PO, goods receipt, invoice).
3)Vendor master data governance
•Centralize onboarding with KYC: tax IDs, corporate registration, beneficial ownership, sanctions and adverse media checks.
•Verify bank accounts with independent callbacks or third-party validation; apply cooling-off periods for changes.
•Detect and block duplicate vendors (same tax ID, address, phone, or bank).
4)Competitive sourcing discipline
•Use standardized RFx templates and documented evaluation criteria.
•Rotate evaluation committees and require COI declarations.
•Maintain an audit trail of bid receipt, opening, scoring, and award decisions.
•Benchmark pricing and validate savings against the market.
5)Spend and process controls
•Adopt “no-PO-no-pay” and category-specific approval thresholds.
•Justify and log sole-source decisions; review frequently.
•Set receiving controls (count, quality) and verify delivery acceptance before payment.
•Lock down off-cycle or “urgent” payments and require secondary approval.
6)Contract lifecycle governance
•Store contracts centrally; tie POs to contract line items and rates.
•Use clause libraries (anti-bribery, audit rights) and control amendments.
•Monitor price compliance and quantity caps automatically.
7)Data analytics and continuous monitoring
•Surface anomalies early with rules and machine learning:
•Duplicate invoices (exact and fuzzy matches).
•Round-dollar spikes, weekend or after-hours invoices, and rapid-fire sequential invoice numbers.
•Payments just under approval thresholds or repeated split POs.
•New vendors with immediate high spend; sudden supplier bank changes—especially offshore.
•Employee-vendor overlaps in address, phone, or bank details.
•Review exceptions weekly; document outcomes and close control gaps.
8)Culture and staffing practices
•Rotate duties and enforce mandatory vacations in high-risk roles.
•Recognize compliant behavior; act swiftly on violations.
Technology that closes the gaps
Modern eProcurement platforms, like ProcureSwift, are control enablers—not just digital forms. They can:
•Enforce role-based workflows, SoD, no-PO-no-pay, and three-way match out of the box.
•Centralize supplier onboarding with embedded KYC, sanctions screening, and bank verification via APIs.
•Provide tamper-evident audit trails, sealed-bid management, and contract-to-PO price checks.
•Monitor spend continuously, flagging duplicates, threshold gaming, or unusual buyer-supplier patterns.
•Integrate with ERP/AP for end-to-end traceability and fewer manual touchpoints.
A practical 30-60-90 day plan
First 30 days
•Map fraud risks by category and process; review top suppliers and high-risk spend.
•Turn on no-PO-no-pay for new purchases; publish clear approval thresholds.
•Lock down vendor creation to a master data owner; require tax IDs and bank verification with callbacks.
•Establish a single, secure process for bank changes; apply a 24–48 hour waiting period.
•Launch a confidential hotline; communicate zero tolerance from leadership.
Next 60 days
•Implement ProcureSwift workflows for requisition-to-pay, including three-way match.
•Build and enforce a SoD matrix; remove conflicting access rights.
•Roll out COI disclosures and gifts/hospitality logs.
•Train buyers and AP on red flags and exception handling.
•Start weekly exception reports (duplicate invoices, under-threshold splits, new vendor spikes).
By 90 days
•Centralize contracts; load pricing and enable automatic price compliance checks.
•Deploy anomaly dashboards and set SLAs for exception review and resolution.
•Conduct targeted audits and vendor site validations for high-risk categories.
•Define KPIs and review them in monthly leadership meetings.
Measure what matters
•% of spend on POs (target 90%+ for addressable spend).
•Maverick spend as % of total spend.
•Duplicate invoice rate and recovery time.
•% of vendors with complete KYC and verified bank data.
•Sole-source rate and documentation completeness.
•Cycle times (requisition to PO, invoice to payment) to ensure controls don’t stall operations.
•Number of hotline tips and time to triage.
Right-size for your organization
Small teams can maintain control with compensating measures: owner review of bank changes, external accountant oversight of payment runs, prepaid/virtual cards with tight limits, and periodic independent audits.
The bottom line
Fraud is often a process failure, not just a people problem. Strengthening governance, embedding controls in daily workflows, and leveraging always-on analytics dramatically reduces opportunity and speeds detection. With a platform like ProcureSwift, you can harden the procurement cycle end to end—protecting every dollar, every day.