Procurement fraud is a costly and difficult-to-control aspect of the procurement process for businesses of every size. It’s difficult to spot and hard to prove and prosecute.
Procurement fraud is a costly and difficult-to-control aspect of the procurement process for businesses of every size. It’s difficult to spot and hard to prove and prosecute. And cases are fraud are on the rise: the Association of Certified Fraud Examiners (ACFE) estimates that up to 5% of purchasing is wasted on fraudulent procurement schemes.
Government contracts are often susceptible to fraud. In fiscal year 2021 alone, the Department of Justice (DOJ) recovered over $5.6B in funds connected with the False Claim Act (FCA). But private companies should also maintain strict controls to avoid falling victim to these activities.
This article covers the essential elements of effective fraud protection. We’ll cover the conditions that allow fraud to happen and the common warning signs that it’s occurring. We’ll also discuss best practices for mitigating fraud risk within your procurement function.
Procurement fraud occurs when an internal and/or external perpetrator manipulates the purchasing process within an organization. Often, a combination of internal and external parties conspire to create the conditions that lead to procurement fraud schemes.
A typical fraud scenario involves an external vendor receiving business at a price above the standard or base price for products or services. The internal stakeholder who awards this inflated contract receives compensation for their part in the scheme. This may come in cash, tangible gifts, favors, or other advantages offered in return for facilitating the fraud.
Procurement fraud is more likely to occur in situations where there is a high volume of purchasing and a low rate of procurement oversight. Procurement fraud becomes more likely when the internal perpetrator is under financial stress or has personal struggles such as substance or gambling addiction. Sometimes the internal conspirator is dissatisfied with the employer or compensation.
Not every fraudulent activity involves the exchange of cash. While in some fraud cases, the internal actor seeks compensation, other forms of nepotism and non-compensated fraud are common.
Collusion for compensation is one of the most common forms of contract fraud. In this scenario, an outside supplier is chosen To provide goods or services for an inflated sum. As compensation for cooperating with bid-rigging, the internal stakeholder receives monetary or non-monetary compensation, also known as a kickback.
Conflicts of interest may not involve direct compensation for the procurement scheme. In some cases, the fraud involved setting up friends or family members to perform services regardless of price considerations or performance capability. It’s important to note that simply choosing a friend or family member to perform services for your company is not inherently fraudulent.
If referred through an open bid and evaluation process, with full disclosure of the relationship between stakeholder and supplier, these arrangements are perfectly legal. The element of fraud is introduced through deception or omission of facts.
Falsified payments to shell companies is a less-common form of fraud. It’s only feasible in situations where little or no procurement oversight exists. For instance, if an organization does not perform invoice reconciliation or invoice matching to its purchase requisitions and purchase orders, this leaves room for so-called “fake company” fraud. This fraud scenario usually involves smaller recurring amounts of payment spread out over a more extended period to avoid detection through accounting audits.
Another common form of fraud is price-fixing or manipulating the quantity of goods received after the sourcing process. This may involve product substitution, performing below contract specifications, or overpricing an invoice for the materials received. In this case, the internal conspirator typically receives outside compensation as payment for facilitating the deal at a higher price.
Not all forms of procurement fraud follow a deal and kick back format. In some cases where contracts must follow supplier-specific guidelines - for instance, when a government procurement project requires a small or medium business (SMB) supplier - Making false statements about supplier designation or certification can be considered fraud. Another example of this would be excepting conventionally grown food under an organic heading when it has not received organic certification.
Budgetary controls are one of the most critical elements in preventing your company from becoming a victim of procurement fraud. Regular accounting audits by independent third-party‘s are often instrumental in avoiding costly procurement schemes.
Larger companies are at more risk for this type of fraud specifically because they deal in higher volume, often employ many SaaS software suppliers, and therefore have more opportunities for quantity or quality of goods to fall through the cracks. Despite this, small business owners should use the same vigilance in dealing with fraud.
Having a solid understanding of your procurement process is one component of mitigating the opportunity for fraud. Another is to develop an awareness of employees in your company who are involved with purchasing or sourcing materials and services. As with most forms of budgetary control, an ounce of prevention is worth a pound of cure. Many times, in the absence of solid budgetary control, procurement fraud goes unnoticed.
Suspect employee behavior: It’s impossible to discern fraud strictly by scrutinizing employees. However, be aware of any changes in the material wealth of employees involved with purchasing and procurement. Sudden or substantial changes (for instance, an employee driving a new car well beyond their means) and other irregularities may provide clues about known or suspected fraud.
Unusual bid activity: Any anomalies in the bidding process or RFP/RFQ response activity outside the norm may warrant scrutiny. Pay attention to instances where buyers or procurement stakeholders express disproportionate interest or support for a specific vendor. Look for instances where a subcontract or third party delivers goods contracted through a bid process without prior agreement.
Materials or service fluctuations: Keeping a close eye on the quality and inventory levels of materials deliveries can help spot procurement fraud due to under-delivery or invoice inflation. Strong budgetary controls that involve three-way matching and materials receipt processes can head off instances of this type of fraud.
Invoice discrepancies: Any instances where materials and invoice data do not reconcile should be investigated. Keep a close eye on vendor payments and tie these payments back to specific projects or purchases every time.
When a procurement fraud incident happens, there is limited recourse for remediation. Procurement fraud is distressing because it involves internal actors and external suppliers.
Developing a fraud response policy with well-defined action plans and stakeholders is essential for recovering from a fraud incident and reducing its likelihood in the future.
In general, a fraud response process should include the following:
Use these techniques to reduce the likelihood of fraud in your procurement process:
Educating your procurement and finance staff about the mechanics and frequency of procurement fraud can help them better understand how it occurs and remain vigilant against potential incidents. In addition, consider vetting and evaluating procurement hires with a lens on the potential for fraud. By enhancing the hiring process, companies may avoid fraud before it occurs.
Strict procurement controls are one of the best defenses against incidents of fraud. Establish a documented and repeatable procurement process with built-in checks and controls to spot abnormalities in the supply chain or accounting process. Understand standard pricing and maintain updated price lists where possible. With many eyes on each purchase, the ability to perpetrate fraud under the radar is significantly reduced.
Develop and adhere to a strict policy of using pre-evaluated and authorized suppliers. By following a stringent due diligence process and developing a highly selective supplier list, the likelihood of fraudulent activities from unknown suppliers is reduced.
Regular internal audits (whether conducted by company stakeholders or outside parties) are a key element in reducing incidents and the likelihood of fraud. Employing high-visibility auditors with a forensic approach to accounting will increase the likelihood of finding fraud while deterring bad actors from attempting it.
It’s crucial to empower your internal staff with the tools and reassurance to report potentially fraudulent activity. In some respects, procurement fraud is a symptom of a dysfunctional corporate culture. Healthy cultures with open communication can highlight discrepancies and enhance fraud prevention.
Automating your procurement process with a procurement software system can help organizations address and reduce the likelihood of fraud.
Vendr’s supplier management capabilities create a well-controlled system, including:
These and other procurement management features create better budgetary control and visibility to reduce risk and fraud.
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Looking for the best procurement software for your organization? Here’s our vetted list of the best solutions to help you manage costs, vendors, POs and more.
Procurement software, sometimes referred to as purchasing management software, manages the process of purchasing goods and services, negotiating with vendors, and optimizing for cost savings.
Procurement software is built to help manage the whole procurement lifecycle. This involves everything from prospecting for internal needs, creating purchase orders, approving purchase requisitions, and tracking invoices.
With procurement software, it’s easier to finalize deals and log transactions to enforce transparency and centralize the procurement lifecycle. That’s probably why the global procurement management software industry’s market size is expected to reach over $13 billion by 2030.
Learn how to consolidate your SaaS stack, build an efficient purchasing process, and negotiate better pricing with our SaaS buying guide.
As you look through procurement solution options, it’s helpful to know the benefits of integrating one into your workflow.
Some of the upsides of using a procurement solution include—
Vendr is a SaaS purchasing management platform designed to help organizations save on software expenses. Its tools are hands-on approaches to the end-to-end software purchasing process — including everything from discovery to renewal.
With Vendr, you can run commercial negotiations and contract renewal management while taking care of the legal and security implications that come with it. With its detailed reports and analytics, you can access crucial spend data, vendor deals, and sourcing tools that give teams insight into relevant market prices.
Businesses that need to automate their software procurement process.
SAP enables you to transform your procure-to-pay process by accelerating the purchasing lifecycle through guided buying, invoice management, and an ERP integration for invoice management. SAP uses catalog features that turn the procurement process into a consumer-like experience.
Once plugged in, employees can browse through the SAP catalog and easily make informed purchases from preferred suppliers. SAP manages indirect, direct, and services spending while being customizable enough to meet individual market requirements.
SAP is best for businesses looking for a highly customizable procurement solution with plenty of automation features.
Contact the SAP sales team to get a custom quote.
NetSuite enables teams to handle just about every aspect of the procurement process. It enables them to communicate with vendors, collect quotes, and track all production and delivery notes.
Not only that, it’s optimized for cost control through tracking cost per item from purchase orders to ensure there aren’t hidden expenses or surprise payments due. NetSuite is a robust procurement platform that improves visibility, centralizes all key procurement data, and accurately tracks procurement expenses.
Growing organizations with an increasingly complex procurement process that want to centralize their systems.
Contact the NetSuite sales team to get a quote.
As a cloud-based procurement suite of tools, Team Procure leverages e-auction and e-procurement software to process purchasing electronically. What does this mean exactly?
Key tasks like bid collection, bid comparisons, approvals, strategic sourcing, supplier evaluations, and delivery tracking all happen digitally from one platform. Within the same platform, teams can analyze purchase insights while saving time and increasing transparency for everyone involved.
Manage a lot of RFQs? You can speed up the offer collection process by creating streamlined procurement workflows that begin and end online. Throughout the bidding process, Team Procure enables you to compare vendors and analyze bids.
Best for medium and large-scale organizations.
Contact Team Procure to request a demo and learn more.
Designed to track, approve, and report company spending, Procurify puts you in control of all your procurement motions in one dashboard. Procurify offers the features you would expect, but it focuses on simplicity instead of an overly complex approach to procurement.
With Procurify on board, you prevent purchasing bottlenecks, create multi-level approval processes, and improve overall turnaround times. With its custom approvals, you can ensure no procurement process goes unsupervised.
Organizations that want to streamline and simplify their existing procurement process.
Contact the Procurify team to learn more about its pricing options.
As a procurement solution, Zoho Procurement is highly customizable. With it, you can automate workflows, customize the step-by-step procurement process, regulate the creation and submission of requisition forms, and control your purchasing budgets.
Zoho is built with both control and speed in mind. Once onboarded, your team can leverage the platform to quicken invoice processing by easily matching purchase orders with invoices. This decreases payment errors and enables your team to position themselves for possible spot discounts from vendors.
Businesses that want to prioritize customization and optimize for speed or those that may already be using other tools within the Zoho ecosystem.
Zoho procurement offers a 15-day free trial. Otherwise, its pricing plans are—
With Precoro, you get all the standard procurement features — including supplier management, budget management, smart notifications, mobile apps, and even custom approval features. So what makes Precoro stand out in a sea of other procurement options?
Its suite of supplier management tools is promising. With supplier portals, they can do a lot of the management that comes with updating capacity, submitting bids, and updating their key data. Precoro’s supplier management tool keeps a running list of all your supplier contracts and reports on supplier performance to communicate with stakeholders.
Best for procurement teams dealing with warehouse management that want to minimize error-prone workflows.
Proqura claims to reduce costs by an average of 12% across spend categories. How? By allowing procurement teams to create customized reports with the insight data that matters.
Proqura ensures you have a record of all your procurement motions in one place, so any piece of key data is easily searchable and retrievable at a moment’s notice. Its built-in approval and workflow features ensure you can set up a procurement process according to your internal compliance policies.
Organizations interested in onboarding e-procurement features for a digital-first end-to-end procurement process.
Get started using Proqura for free, or sign up for a demo to learn more.
Consider Corcentric as a possible solution if you’re primarily trying to optimize for company cash flow. Instead of letting procurement run you, Corcentric puts you in the center of your procurement efforts with tools built for spend, risk, and compliance management. Plus, it comes with a supplier catalog system that procurement teams can access to fulfill POs with up-to-date vendor data.
Corcentric’s standout feature is probably its built-in contract solution. With it, employees with special procurement permissions can browse the vendor catalog, make purchases, and automate the management and creation of contracts with embedded contract integration. It’s a time-saving feature that shortens the purchasing process and may save you additional resources.
Organizations looking to enhance cash flow by refining their procurement practices with a digital solution.
Get a custom quote by contacting the sales team.
Procurement teams are tasked with the goal of creating results and creating real financial impact across their organizations. With platforms like Vendr, it’s as if you’re cloning your procurement team: It automates vendor management and ensures you’re scoring the best deals.
As your list of internal applications grows, onboard Vendr to automate the cost optimization process and increase your organization’s savings year over year.
Take our free savings analysis to see how much you can save with Vendr.
Here’s everything you need to know about what a purchase requisition form is and how it works as part of the procurement process.
In a previous post, we walked through the ins and outs of a purchase order. In this guide, we talk all things purchase requisition forms. What they are, what they contain, and the steps involved in the purchase requisition workflow.
A purchase requisition is an internal document created by employees to request the purchase of goods and services for a business. Purchase requisition forms are created for all kinds of purchasing needs like manufacturing goods, hardware, inventory, or any other good or service the business needs to run.
Once a purchasing department receives a requisition form, they go through an approval process, from which they can then create a purchase order that’s sent to the appropriate vendor. Once the order has been agreed on and fulfilled, the vendor sends back an invoice.
This whole purchasing process—from purchase requisition creation to approvals and drafting purchase orders for vendors—is established to ensure accurate business expense record keeping. It’s also a way to uphold transparency amongst employees in each department throughout the procurement lifecycle.
A purchase requisition form is used by an employee, sometimes called the requestor, to describe the need for a specific good or service. It also describes exactly what is needed.
If you work in the HR department and you run out of printer paper, you fill out a purchase requisition form. Submitting this to your procurement team prompts them to approve the purchase and create a purchase order. From there, the approved order is sent to the office supply vendor, who accepts and fulfills the order. The vendor then invoices the business for the reams of printer paper requested.
It’s important to distinguish between a purchase requisition form and a purchase order form. They’re often confused for each other and incorrectly assumed to be the same thing.
A purchase requisition form is an internal document drafted for internal approval of company purchases. A purchase order form is created once the purchase order requisition is internally approved.
Unlike a purchase requisition form, a purchase order form is a document—these days often a digital document—that’s created to be sent externally to vendors. In other words, a purchase requisition form comes first, and the purchase order form comes second.
A first glance, creating a purchase requisition form may seem like just another step in a process. Still, this step offers benefits to businesses, including—
Though requisition forms aren’t exactly alike across every business, they do tend to contain the same general information.
Download this template to outline your company's software purchasing process and empower stakeholders to efficiently identify needs, evaluate options, and request SaaS solutions.
Here’s a general step-by-step overview of the purchase requisition workflow.
Let’s say you work at a honey manufacturing plant and you ran out of mason jar lids to properly package your goods. As an employee in the packaging department, you notice you need more lids and decide to fill out a purchase requisition form. You include—
Once you’ve completed the PR form, you hand it to your manager so he can approve it and submit it to the finance department or procurement team.
Once the procurement team receives the PR request for more mason jar lids, they go through an approval process. Once the requisition form is approved, the procurement team creates an official purchase order. Much like PR forms, PO forms contain a few key fields.
At this point, your requisition request form has done its job. It’s a paper trail of goods requested that a procurement department can track. It ensured PO accuracy and streamlined the communication of internal needs from one department to another.
Now, it’s up to the procurement team to create a PO and send it to the appropriate seller. Once the seller agrees to fulfill the purchase order according to the terms and delivery dates outlined, it moves into fulfillment.
The purchase requisition form has led to its intended outcome. The end goal is fulfilled successfully with the delivery of the requested goods or service. The cycle starts once again any time there’s a new request.
With technology at the forefront of a fast-paced business environment, most businesses use digital requisition forms to fulfill their order requests.
Sure, you can use paper requisition forms. But why lean on manual processes when digitizing the whole process is much faster, leaner, more automated, and increasingly centralized?
These days, maintaining an audit trail of every internal requisition request is streamlined by digital automation. Procure-to-pay (P2P) systems accelerate the end-to-end process.
Tools like Vendr make the processes like buying software a breeze by eliminating the need to deal with loads of paperwork. As a SaaS buying platform that optimizes for cost savings, it’s built to ensure you score the best software deals according to vendor data. It facilitates effective vendor relationships, which are critical to keeping purchasing prices low, deliveries on schedule, and operational efficiency optimal.
The purchase requisition process plays a vital role in the overall purchasing system that is the procurement process.
Thankfully, software automates much of this process. With one accessible platform, departments can cross-reference requests for accuracy and all key documents within a centralized procurement system.
When buying software for your business, check out Vendr. Use our free savings analysis to see how much you could save on software purchases.
Looking for the best procurement tools to meet your needs? Check out our guide to the 11 best tools on the market worth considering.
The procurement process can be an involved undertaking. Without a procurement solution, you risk overspending, decrease visibility, and have a harder time enforcing fair and ethical vendor relationships.
Every time you optimize for a step in the process, you lower the chances of dealing with issues like unethical vendor relationships as a by-product of poor procurement management.
This list walks through several procurement solutions, each with its own points worth considering. But first, let’s look at how we define procurement software.
Procurement software is a digital solution that uses automation to streamline the many phases of the procurement process.
The best procurement tools...
Using procurement tools, teams can more efficiently run operations, maintain transparency, and automate processes.
The best procurement solutions simplify your processes and centralize your contracts and procurement documents. They log vendor management receipts and invoices, and they enable you to manage all this from one accessible dashboard.
When thinking of onboarding a solution for your organization, consider some of the most important procurement features needed to streamline business processes.
Contract management: A contract management tool saves you time, reduces expenses, and makes deals with vendors more efficient. Any time an addendum is in order or a contract needs to be renewed, you can easily pull it up, make changes, and keep a record of those changes.
Supplier management: A robust procurement solution enables you to onboard suppliers and ensures you’re getting the best value from vendor deals. Thus letting you negotiate better terms with suppliers.
Automation and notification features: A notification and automation feature is a no-brainer. The procurement software you select should be able to automate manual work and send you automated notifications for every task that needs your attention.
Here’s a look at some of the best procurement solutions and their functionality.
Vendr helps you manage and process all your SaaS deals and licenses in one place. It ensures you’re getting a new SaaS tool at a fair market rate and buys and renews all your software. With its detailed reports and analytics, you can access crucial spend data, vendor deals, and sourcing tools that give teams insight into relevant market prices.
Organizations looking to automate their processes who can spend anywhere between $400,000 - $5,000,000 or more.
Procurify makes it easy for organizations to manage their vendor budgets with a streamlined workflow that’s powered by automation. As a procurement tool, Procurify focuses on improving transparency by making the process accessible to anyone in the organization.
It offers spend control features, so you always know what you’re spending and where. Its data and analytics features are always accessible through its mobile app.
Organizations looking to simplify their procurement process.
Procurify offers three customized pricing plans depending on the number of users your team needs. Contact their sales teams to learn more about pricing.
Looking for a simple, easy-to-use procurement software? Check out Fraxion. You can automate and simplify your purchasing process, approval workflows, and purchase order generation tasks. It comes with robust purchase requisition and expense and approval management features to ensure your team optimizes for cost savings.
Companies that want to focus on spend management.
Request a quote from their sales team.
Team Procure’s delivery tracking, approval workflows, and supplier evaluation features enable teams to track department-based purchases with ease. By centralizing procurement needs in one dashboard, Team Procure enables you to lower spend.
Its standout feature is its suite of e-auction tools. Once you identify your needs and invite suppliers, they can start e-bidding for deals and competing by offering the best price.
Enterprise procurement needs with a higher level of complexity.
Contact their sales team to get a custom quote.
Gatekeeper helps procurement teams reduce costs and minimize risk. With it, you can manage your team’s workload, get visibility into all your vendor contracts, and establish an end-to-end procurement process.
Businesses looking to simplify their procurement processes without forgoing risk management.
Want to know where procurement software can take your business in the next few years? Check out the Jaggaer procurement tool. It uses a collaborative, agile approach to identify where your business could save money throughout the procurement process. Jaggaer is comprehensive enough to track inventory and help reduce supply chain risk—ensuring your quality management efforts pay off.
Organizations looking for an all-in-one comprehensive procurement solution.
Contact their sales team to get a quote.
If you’re looking to reduce manual work and bring together disparate systems, consider Concentric as an option. Corcentric makes it easy for suppliers to sync catalogs with contracts while keeping them updated in real-time. You can also centralize all your procurement data into one accessible dashboard.
Corcentric works with a cataloging system that suppliers can access to update their goods and services data. This way, your team is filled in on vendor capacity on an ongoing basis.
Companies that want to transform error-prone manual processes into a streamlined procurement system powered by automation.
Contact the sales team to get a custom quote.
Quickly buying goods and services at the best price is always a procurement goal, regardless of your organization’s size. NetSuite helps organizations achieve that by generating real-time views into company spend and vendor performance.
NetSuite improves visibility by showcasing company spend and vendor performance in a real-time view. The procurement dashboard lets you get all the procurement-related information, including records, expenditures, payments, and vendor performance.
Companies of all sizes who want to grow their businesses quickly.
Contact its sales team to get a quote.
If you’re looking for a highly customizable procurement solution, then Zoho procurement is worth considering. It helps you personalize and automate your procurement workflows by removing the time-consuming manual tasks in your procurement cycle. Zoho saves time by regulating requisition creation and giving you complete budget control.
Businesses that want to prioritize customization.
Zoho procurement offers a 15-day free trial. Paid pricing plans are as follows:
Simplifying the sourcing process and automating daily procurement tasks alone is enough to save you loads of time as you deal with vendors and manage deals. OpenGov is designed to empower teams with the ability to do both.
One of its most helpful features is its public vendor self-service portal which allows vendors to communicate with teams regarding price, supply chain data, and availability.
Government organizations that want to streamline their procurement processes.
Contact its sales team to get a quote.
Sap enables you to cut costs and ensure compliance from one centralized procurement dashboard. It automates procure-to-order processes with guided buying features and ERP integrations.
Sap helps teams control costs with a catalog approach to vendor purchases and API integration capabilities. It’s built to manage direct, indirect, and services spending in every industry while being adaptable enough to meet individual market requirements.
Sap is best for businesses looking for an adaptable procurement solution that helps them cut costs and automate compliance efforts.
Contact its sales team to get a custom quote.
Many procurement management solutions offer many of the same features. For that reason, choosing the appropriate tool ultimately comes down to more specific needs and the preferred features for your team.
When it comes to managing SaaS vendors, a tool like Vendr helps teams expertly oversee the process of getting the most value at the best price point.
Use our free saving analysis tool to determine how much you could save on SaaS.