When relationships cross the line

31 July 2018 08:50 by Rudi Kruger

Procurement fraud can be committed by employees acting alone or in collusion with vendors.

While fraudulent activities between suppliers/vendors and employees are not uncommon, these transactions are unacceptable as they create a host of challenges to the business if allowed to continue under the radar.

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

Rudi Kruger, general manager of Data Services at LexisNexis South Africa explained that some of the ways in which employees collude with vendors include:

  • Pass-through schemes, where an employee or contractor sets up a business, which supplies goods or services to client.
  • Conflict of Interest, which occurs when an individual or organisation is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other.
  • Shell company schemes, which enable an entity that has no active business and usually exists only in name as a vehicle for another company’s business operations.
  • Tender fraud, where the manipulation of the bidding/tendering process between employees of the issuer of the bid and the bidding company lead to bribes and kickbacks.
  • Billing Schemes, when an employee generates false payments to himself/herself 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, when an employee participates in a bribery scheme when he or she accepts (or asks 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. 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 said it advisable to conduct thorough background checks on new employees as well as implement 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.

A solution that is extremely useful in the procurement process for weeding out fraudulent activity is Lexis ProcureCheck, an easy to use web based system designed to help you identify and prevent fraud schemes. Lexis ProcureCheck assists with procurement vetting and vendor management, and facilitates the verification of various data sets, providing linkage to identify possible conflicts of interest, pass-through schemes and shell companies. It also enables users to investigate negative and positive news on vendors and employees to assist in mitigating reputational risk. Another key benefit is that it assists supply chain management officers to ensure compliance with the Public Finance Management Act and the Municipal Finance Management Act.

Lexis® ProcureCheck is the first of its kind and is built on a new technology platform allowing flexibility and stability. It provides automated irregularity alert reports as well as reports on vendors and staff. With ProcureCheck, you can create your own vendor list. It can also help you highlight external business interests of employees within your organisation. It has strong financial backing and is managed by a highly experienced team.

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