Mitigating procurement fraud requires a coordinated approach that includes a combination of preventive, detective, and corrective control measures. Here are several strategies and measures that organisations can introduce to mitigate the risk of procurement fraud.
Each organisation is different in terms of size, operations and supply chains and no one approach can be used to identify and mitigate procurement fraud risk.
Strong internal control measures
Segregation of Duties and dividing procurement responsibilities among different individuals or teams to prevent a single person from having end-to-end control and/or decision making over the procurement process.
Approval hierarchies or authority levels using multi-level approval processes for purchase orders and vendor selection to ensure oversight and prevent unauthorized or fraudulent transactions.
Supplier due diligence
Vendor Screening conducting background checks and due diligence on potential suppliers to verify their legitimacy and track record. Maintaining an Approved Supplier List, limiting procurement to approved vendors who have met predefined criteria can help reduce procurement fraud risk from unknown or unreliable suppliers.
Transparent procurement procedures
Clearly Defined Policies and developing comprehensive procurement policies and procedures that outline the entire procurement process, from requisition to payment. Competitive Bidding encourages competition among suppliers for major contracts to ensure fair pricing and quality.
Clear Terms and Conditions ensuring that contracts are well-drafted, with detailed terms, pricing, and performance expectations to reduce ambiguity and disputes. Regular review and update of contracts to adapt to changing business needs and market conditions.
Implement procurement software that provides visibility into the procurement process, tracks transactions, and automates approval workflows. Data Analytics is a valuable tool to proactively monitor procurement data for anomalies, patterns, and suspicious activities.
Auditing and monitoring
Internal Audits that are conducted periodically of procurement, finance and quality processes to identify vulnerabilities and potential instances of fraud. Data Analysis can be used to identify unusual spending patterns, vendor relationships, or transactions that may indicate fraud.
Conduct surprise or random audits on procurement transactions and supplier relationships to deter fraudsters and keep employees vigilant.
Training and awareness
Whistleblower Protection policies, infrastructure and compliance programmes can be a valuable approach in building counter fraud culture. Establishing a confidential and anonymised reporting mechanism for employees to report suspected fraudulent activities without fear of retaliation is a strong indicator of trust.
Monitoring of procurement activities and compliance with policies and procedures including counter fraud and/or an anti-corruption approach by appropriate expertise is an essential in the coordinated approach of procurement fraud risk identification and mitigation.
Introducing proactive communication and engagement with staff, suppliers and partners is an important part of building a trusting environment within an organisation. Where staff feel comfortable in discussing ethical issues and reporting their concerns will increase the information that an organisation receives on procurement fraud risk and decreasing the likelihood of being a target for procurement fraud.
Third-Party Reviews by external consultants or auditors to assess your procurement controls and recommend improvements is an important part of a risk mitigation approach where external expertise can give a different perspective on risk and help identify an improved approach and control measures to better respond to risk.