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ALRAQABA . ISSUE 15
Procurement Fraud schemes:
According to The international Anti-Corruption
Resource Center, Procurement Fraud schemes
may occur in many scenarios, which could
include bribes and kickbacks, change order
abuse, conflict of interest, collusion between
contractors, collusion between contractors and
the entity’s employees, defective pricing scheme
in negotiated contractors, and collusion in the
post-award and administrative phase. Fortunately,
some major red flags could be an indicator for
Procurement Fraud schemes. In order to detect
such schemes, examiners and auditors should
pay attention to such indicators.
The major red flags of Procurement Fraud
schemes may include the following:
• Expensive gifts.
• Hidden interests in business transactions.
• Qualifying an unqualified company to bid.
• Unexplained increase in wealth by
procurement official.
• Unusual bid patterns.
• Vague contract specifications followed by
change orders.
• Unreasonably narrow contract specifications.
• Poor controls on bidding procedures.
• Unexplained high volume purchases of
products or services from a particular supplier.
Detecting previously mentioned fraudulent acts is
possible by following the right procedure, as well
as hiring qualified Auditors and fraud examiners.
Preventing/Detecting contract and
procurement fraud:
Procurement schemes are difficult to detect and
prevent because these schemes take various
forms, can occur in any stage of the procurement
process, and tend to take place over long periods.
In addition, most perpetrators have specialized
knowledge in the entity, which allows them to
know the weaknesses in the procurement system.
Nevertheless, there are ways to prevent and
reduce the chances of contract and procurement
fraud. Employers should follow procedures to
prevent and detect procurement fraud such as
employee education internal control, monitoring
activities, vendor management.
1. Employee education
Educating employees is the best tool used
to prevent fraud. Entities should focus on
educating employees who hold the best position
to recognize defenselessness or red flags of
procurement fraud.
2.Internal control
It is crucial enhance entity’s internal control
procedures. The internal control includes:
• Separation of duties.
• Supervisory control.
• Authorization control.
• Reconciliation control.
• Recording control.
3. Monitoring activities
An entity should have a continuous self-auditing
system to measure the performance of its
procurement activities. In addition, technology
is beneficial in achieving the evaluation of the
effectiveness of internal control, which can
assist organizations to detect red flags. Early
detection will help in improving the internal control
procedures, which will help organizations to
respond proactively to risks and enhance their
compliance policies.
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