The Things Company Should Know About Vendor Fraud
Trust and goodwill have become the main basis for business cooperation. However, such trust is prone to be misused by one party by committing fraud and causing losses to the other party.
Based on the ACFE report, Report to the Nations on Occupational Fraud and Abuse 2014, companies generally experience losses of up to 5% of annual turnover due to fraud. More than 77% of the fraud was carried out by individual companies.
Vendor fraud is one type of fraud that the company should be aware of and has the potential to involve employees within the company. Vendor fraud is generally grouped into two:
- Fraud which carried out by the vendor only. For example, the vendors agree not to compete against each other in certain market segments. If there is a tender opened by a company in the market segment, the vendors will not bid or will only submit a complementary offer. As a result, there was a shortage of offers to make the company inevitably accept high-priced offers.
- Fraud in the form of collusion between vendors and company employees who are rigged. For example, vendors collude with company employees to inflate the value of the bill.
It should be remembered by every company that trust is not something that can be controlled, but strived and maintained with good intentions. The good intention is implemented to mitigate and eradicate fraud, by conducting among others:
– Background check on recruitment
– Educate employees about the importance of mitigating and eradicating fraud as well as fraud reporting protocols
– Implement a whistleblowing system
– Perform screening vendors
– Conduct random audits of vendors
– Perform employee duty rotation in the procurement division
– Using data mining to reveal patterns suspected of fraud and the anomalies