Glossary term
Procurement Fraud
Subject: Financial Crime, Fraud
Also known as: Purchasing fraud
Procurement fraud is dishonest conduct in buying goods or services, such as rigging bids, taking kickbacks, favouring a supplier improperly or submitting false invoices, to gain advantage or cause loss to the buyer.
Explanation
The fraud can arise at any stage. Before a tender, an insider may write specifications to suit one supplier or leak other bidders' prices. During bidding, suppliers may collude to fix prices or take turns winning, which is bid rigging. After award, the supplier may deliver poor quality, bill for work not done or inflate quantities, sometimes with a kickback to the official who approves. Splitting purchases to stay below approval limits and using shell vendors are other methods. Public sector buying is especially exposed because of the value and the number of officials involved. Defences include open competition, rotation of staff, conflict of interest declarations, separation of ordering, receiving and paying, and data analysis of bidding patterns. Procurement analysts compare winning bids, vendor addresses and approval amounts, looking for patterns no honest process would produce.
Example
A hospital buyer splits a 90,000 equipment purchase into three orders of 30,000 each so that none needs board approval. All go to a supplier owned by his brother, at prices well above market. An internal audit analysing purchase orders by vendor notices the repeated just-below-limit amounts and the shared address on the vendor record, and refers the case to investigators.
Not to be confused with
- Bribery
- Bribery is the offer or acceptance of an improper payment. It is a common method within procurement fraud, but not the whole of it.