Indonesia Corruption Watch (ICW) revealed that procurement fraud during 2017 had cost Indonesia Rp 1.02 trillion. Procurement fraud refers to any violation of the procurement process which can be happened in public or private organizations.

Fraud in procurement cycle is too common to happen and is not easy to detect, prove or prosecute as it involves many parties, primarily internal ones and can happen in any stage of the procurement life cycle. It is one of the most complex kinds of frauds to combat. According to the Indonesia Procurement Watch, 70% of corruption cases in Indonesia are rooted in goods and services acquisition.

Procurement fraud can take many forms among others are:

– Kickback (bribes)

– Bid rigging

– Fraudulent invoice

– Fake order   

Prevention is always better than recuperation. While procurement fraud is one of the most complex fraud types to combat and cannot entirely be eliminated, it can be reduced by implementing the right preventive actions, which are:

1. Build and establish the ethical culture

A sound ethical corporate culture creates an expectation to do what is right, by that minimizing the propensity to rationalize fraudulent actions. 

2. Hire the right people

There have been many incidents which companies should face financially lost and ripped reputation due to frauds and misbehavior done by the employees. Therefore, taking adequate steps by conducting background screening is a requirement for preventing bad hires.

3. Develop, establish and review internal control

The companies that have anti-fraud control experience fewer losses than companies that do not have. 

4. Know your vendor

Running due diligence on prospective vendors is a logical way to minimize all potential risks that may arise once the cooperation runs. The thorough and well- executed due diligence brings the valid outcome which is key for business in selecting the right vendor. 

5. Monitor the procurement

Run a regular check to ensure the supply chain works in compliance with standard operational procedures.