Contract and Procurement Fraud Prevention and Early Detection

The Potential for Contract and Procurement Fraud is in the Purchasing Process.

Fraud is possible any time a vendor is vying for business and a procurement officer notices an opportunity for personal benefit. Detection is a challenging problem due to the complexity of the procurement function, the possibility of fraud at all stages of the process, the large number of participants, and the sheer volume of transactions. Auditor discovery of contract and procurement fraud typically occurs after the losses have happened and the money has been lost, if at all.

The Fundamentals of Combating Procurement and Contract Fraud

Even in the most notable incidents, the existence of any anti-fraud laws and procedures would have prevented at least some of the fraud. An organization may prevent a lot of contract and procurement fraud by using excellent practices even if it cannot afford a sophisticated analytics solution. Let's discuss a few.

• Keep an accurate master vendor list that you can audit: Even though this is the most fundamental control, very few businesses actually get this step correctly.
• Exercise caution when assessing vendors: Ensure that every vendor has been verified as being qualified to receive contract awards.
• Refer to the debarments' published sources: Government lists of disqualified suppliers may be useful resources for those in the corporate sector, even if you don't work with government contracts.
• Check to see if a vendor fits the right profile: Peer grouping or clustering contrasts a vendor's actions with the typical behavior of their peers.

Analytical Methods for Early and More Precise Detection:

• Text Mining: analyzes social media, contracts, and other text sources to spot trends.
• Advanced analytics: can create predictive models that pinpoint characteristics or recurring patterns that, despite sophisticated and newly emerging fraud patterns, have a strong correlation with established contract and procurement fraud.
• Machine learning: is revolutionizing the field of contract and procurement fraud detection. Machine learning adapts to changing behaviors in a population through automated model development, in contrast to rules-based detection systems, which are very simple for fraudsters to test and bypass.

Detecting Contract and Procurement Fraud Early

Any form of cooperation between suppliers and vendors hinders open competition and distorts the fair market value of products and services, regardless of the fraud's design or breadth. It doesn't require a compelling argument to show that more must be done immediately to safeguard the objectivity of the procurement function.Whatever systems and procedures are currently in place, there is always room for improvement in order to achieve earlier and more precise detection, leading to a greater number of high-value alerts and fewer false positives. In order to make the most use of auditors' and investigators' time for detection and prevention, we ultimately want to aggregate different control methods and prioritize the most crucial things for them to review.Hurry up and register for our Purchasing and Contracts Fraud training course and start developing your skills in the field.