Procurement fraud on the increase, but value falls

25 July 2012

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25 July 2012 | Kamalpreet Badasha

There have been more cases of procurement fraud this year, but the overall value has fallen significantly.

The recorded value has dropped dramatically from £25.3 million in 2011 to £3 million this year, according to the 2012 Interim FraudTrack report from professional services firm BDO. BDO attributed last year’s high figure to a case involving the Ministry of Defence in Northern Ireland, worth about £25 million, and another case worth £300,000.

Simon Bevan, head of fraud services at BDO told SM: “We are aware that procurement fraud remains a problem and is an issue we see a great deal of in our work; it is clearly under-reported in comparison to our own experiences. It is a particular risk for organisations with capacity for procuring large volumes of goods and services, especially in retail and construction.”

The purchasing fraud cases in the report were in the following sectors professional technical, which includes IT and also science and technology, transportation and warehousing, and retail, covering the period between December 2011 and May 2012.

The report found overall fraud had dropped from £920 million to £424 million, a fall of 54 per cent. “Despite this drop in value, we’re actually seeing more cases going through the system, but of lower value. We suspect that organisations are only bringing in the authorities for small, relatively simple frauds. If that’s the case, I’m in no doubt that reputation management is a key factor in this decision. Organisations just don’t want to air their dirty linen in public,” Bevan added.

Supplier fraud was also highlighted as being on the increase. The typical case involves a fraudster convincing the accounts payable team to change a supplier contact and bank details resulting in money being paid into a bogus account.

“The reputational impact of a supplier not receiving their payment on time is significant. Such circumstances could force that supplier to reconsider their association with you and ultimately affect your ability to run your organisation. Most frauds like this one are not complex and could easily be prevented by simple due diligence, but one thing they do have in common is their impact on your reputation,” Bevan concluded.

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