Fraud in procurement is one of the most common and costly types of fraud that business enterprises can face. A 2014 study by PwC estimates at least 30% of businesses have been victims of procurement fraud. Along with an ACFE study placing the annual global loss at approximately $3.7 trillion, this is no doubt a significant issue for businesses to protect themselves against.
Procurement Billing Fraud
Billing Fraud within procurement involves a supplier sending in intentionally falsified billing invoices. These invoices will most commonly be inflated from the actual price. However, cases of Billing Fraud also include sending duplicate invoices for the same order, or even submitting entirely fabricated billing invoices for orders that do not exist.
However, the contractor or supplier sending such invoices is only one part of the overall scheme. In order for Billing Fraud to succeed, these inflated, duplicate, or fake invoices must be approved and paid by the purchasing company without dispute.
This is where buyer collusion enters the picture. While it may be possible that such fraudulent billing invoices are overlooked due to carelessness or negligence, this is unlikely to be the case on a frequent and ongoing basis. Instead, suppliers perpetrating Billing Fraud tend to rely on an arrangement with members of a purchasing company’s procurement team who will sign off on these falsified billing invoices in order to receive some type of kickback in exchange.
Signs of Procurement Billing Fraud
Unlike a number of other types of procurement fraud, Billing Fraud is not only possible, but also likely to be caught with appropriate audits. These audits, when conducted properly and regularly, are likely to turn up missing records, deliveries, or even non-existent goods themselves that are otherwise detailed in these falsified invoices.
When such records are missing, don’t match the billing invoices sent by your supplier, or are signed off on by your procurement team, it is a sure sign to investigate further. Another certain sign of Billing Fraud includes two or more invoices that match exactly. In such a scenario, these duplicate invoices would share a purchase number, detailed services, or identical pricing. If these happen to appear during any investigation or audit, a full search and explanation as to their source are warranted.
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