Employees may be trusted with certain procurement responsibilities which can provide opportunities to commit fraud-related offenders. It’s difficult to identify the risks. A common sense approach is always essential.
1. Kickbacks and corrupt payments
A type of bribe, a kickback is paid by the contractor after they’ve received payment for the winning project. They often vary between 5% and 20% of the overall contract value. A corrupt payment is promised to influence the recipient for a successful bid. It can be monetary, but can also take the form of goods or services in kind such as expensive gifts, credit cards, sexual favours and overpaying for reciprocal purchases.
2. Corrupt influence
This type of procurement fraud includes paying over market rates, buying more items than are needed, qualifying an untested or unqualified supplier and excluding qualified bidders. The fraud perpetrator might also tailor or narrow specifications to such a degree that only their chosen bidder can win.
3. Collusion and manipulation by bidders
Collusion often accompanies kickbacks and involves groups agreeing to submit complementary bids to win contracts, sometimes on a rotation basis. This system may be used to divide regions between select parties and to monopolise the field. Manipulation occurs when a bid, or circumstances surrounding it, are managed to benefit a preferred bidder. Examples are leaking information from fellow bidders, accepting late bids and re-bidding of the tender.
4. Billing fraud
This is the intentional submission of false, duplicate or inflated invoices by a supplier or contractor. This can also happen in collusion with the representatives of the buyer who will profit in some way from the fraud.
5. Conflicts of interest
Non–disclosure falls under this category, wherein a member of the procurement team fails to disclose their interests with a contractor or supplier, liaises with them unofficially, or accepts gifts or payments. Where an employee purchases items through their company and bills this to a project for private use, this is deemed to be personal interest and is clearly fraudulent.
6. Delivery fraud
There are three main types of deliver fraud: variation abuse, contract specification abuse and improper claims/imprest funds. In variation abuse, a contractor submits a successful low bid (in collusion with a procurement executive) and subsequently submits further multiple variations to increase financial gain. Fraudulent contractors may flaunt contract specifications by delivering sub-par goods or services, aware they fail to meet the quality expected. In order to succeed, the quality of the items or works is concealed or falsely represented. Sometimes, suppliers exploit operating costs or petty cash funds with false or exaggerated requests for reimbursement of expenses, personal or unauthorised spend, or duplication.