Everyone has to deal with vendor fraud

Our team is great–it couldn’t happen to us

One of the biggest issues and concerns organizations face today is vendor fraud. We mention this in a previous blog post about Top 5 Risks to Watch for in 2020 but we’re going to take a moment and dive into discovering if your business is at risk of vendor fraud–hint: it absolutely is.

Vendor fraud can be an attack on your organization by a single vendor or several vendors working together or a vendor(s) working with an employee within your organization. Either way, these people have rationalized their actions.

Now is the time for you to take concrete action to ensure that any future attempts remain attempts and do not become full blown attacks compromising both your finances and your credibility.

Common schemes

Vendor fraud covers several different schemes; overbilling, bid rigging, price fixing, and kickbacks being some of the more common ones you may see.

Overbilling – You receive an inflated invoice from a vendor for their goods or services.
Bid rigging – Vendors and employees collude to ensure that your organization’s purchase of goods or services goes to a bidder with a higher price
Price fixing – This is an agreement between competing vendors to set a price range or similar pricing for goods or services
Kickbacks – Employees accept misappropriated funds from vendors for facilitating fraudulent acts

Recognizing vendor fraud

Yes, vendor fraud can happen to you. Yes, you need to be diligent and have a process in place for preventing, identifying, and handling attempted vendor fraud. So, where do you even start?

Here are some ways you can begin to implement a tighter process around vendor fraud:

  • Thorough vendor enrollment process – When you set up your vendor accounts make sure everything adds up. If any mailing addresses match those of any employees, that is clearly a red flag. Confirm all vendor tax ID numbers and phone numbers. Check ownership details through state business databases. It’s also a good idea to have someone other than the person who does vendor set-up to review all new vendors on a regularly scheduled basis.
  • Segregation of duties – Ensure there is a clear delineation between the person who processes invoices and/or payments and the person who authorizes the invoices and payments.
  • Anonymous hotline for employees – create a safe space where employees can anonymously report irregularities.
  • Strengthen your internal controls – make sure everyone is on the same page from management through the entire organization. Highlighting fraudulent activities and having employees complete fraud risk assessments being two examples.
  • Education of employees – consistent awareness and training should be a part of your fraud prevention plan. Employees will be less likely to attempt fraudulent activities if they know how strict and secure your organization’s process is around fraud prevention.


You’ll thank yourself later

Taking the time now to put these processes in place will help you later on when you are faced with potential vendor fraud. If you suspect fraud check it out. It’s not just scammers who are actively trying to take advantage of your organization.

The adage of being safe rather than sorry applies heavily here. Stay calm, but alert.

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