18
E-COMMERCE
PROCUREMENT FRAUD
Procurement fraud comes in several
different guises and like many deceptions
practiced within e-commerce it has existed
long before the internet was even thought
of. Procurement fraud can be defined as
the manipulation of an established process
to acquire goods or services with a view
to obtain an unfair advantage (financial or
otherwise).
The main areas of procurement
fraud consist of:-
• Phantom Vendors – Phantom vendor
fraud describes the process whereby an
employee establishes a fictitious vendor
and submits invoices for payment. Inside
knowledge is used to keep payments
amounts under set review parameters to
ensure that the invoices are not subjected
to scrutiny or passed upwards to higher
management. The fraud often involves
collusion with friends and family of the
perpetrator in an effort to distance the
connection to the dishonest employee.
• Collusion between vendors and
employees (Kickbacks) – This fraud
involves an employee misusing their
position to award contracts or purchases/
engagement for services to vendors in
return for personal gain. Personal gain
may be financial, employment for family,
personal discounts, and other gratuities.
These kickbacks are often absorbed by the
vendor by inflating invoices submitted or
substituting products used in a process for
ones of a lesser quality.
GOVLINK » ISSUE 2 2018
• Duplicate Payments – Duplicate payments
processed for a service or goods without
any justification for that second payment.
Again this fraud requires collusion between
procurement staff and the vendor.
• Tender Rigging – An area where I often
hear rumbling from disgruntled vendors
where there exists an implication that
the awarding of a tender for a project
was won by a less deserving vendor. We
all understand the disappointment of
missing out on a tender, especially given
the amount of work required to prepare
and submit, and human nature lends itself
to looking for a reason why you were not
successful. Suspicion runs high when you
see a vendor that you feel less capable
being awarded the contract. Unfortunately
there exists a perception that certain
vendors receive favourable advantage
from the calling body and open source
data available on the internet shows that
the tender process has been manipulated
time and time again. These manipulations
include awarding contracts to vendors
with family connections, the businesses of
acquaintances, the release of information
to one vendor concerning opposition
tenders so that their tender is more likely
to be favoured and even the awarding the
tender on the basis of race,
• Collusion amongst vendors within an
industry (Bid Rigging) – This exists as a
form of collusive price fixing behaviour
by which businesses co-ordinate their
bids within the procurement process so
that one member of the cartel of collusive
businesses wins the contract. The ACCC
defines the types of bid rigging as:-