When supplier-employee relationships cross the line

Procurement fraud can be committed by employees acting alone or in collusion with suppliers. Fraudulent activities between suppliers and employees create a host of challenges for the business if allowed to continue under the radar.

With this threat, the onus rests with organisations to create a culture where fraudulent activities are easily identified and dealt with.

In this month’s SmartProcurement, Rudi Kruger, General Manager of Data Services, LexisNexis South Africa, explains some of the ways in which employees collude with vendors.

– Pass-through schemes are where an employee/contractor sets up a business which supplies goods/services to clients.
– Conflicts of interest are when an individual/organisation is involved in multiple interests, one of which could possibly corrupt the motivation for an act in another.
– Shell company schemes enable an entity that has no active business and usually exist only in name as a vehicle for another company’s business operations.
– Tender fraud is the manipulation of the bidding/tendering process between employees of the issuer of the bid and the bidding company that leads to bribes and kickbacks.
– Billing schemes are when an employee generates false payments to themselves using the company’s vendor payment system, either by creating a fictitious vendor or by manipulating the account of an existing vendor.
– Bribery and kickbacks are when an employee participates in a bribery scheme and when they accept (or ask for) payments from a vendor in exchange for an advantage.
– Overbilling is when a vendor pads invoices to charge the company for more goods than it ships or to charge a higher price than agreed upon. This can be done in collusion with an employee who receives a kickback or by the vendor alone to defraud the company.

To prevent and detect vendor fraud, Kruger advises conducting thorough background checks on new employees as well as implementing checks and balances on payments to vendors. “In addition, it should become part of policy to separate the functions of ‘check preparer’ and ‘check signer’, rotate duties of employees in procurement, conduct random audits of vendor files and conduct due diligence when setting up vendors”, he added.

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