Why Does Procurement Fraud Occur?
Procurement fraud, as it is indicative of its name, can actually injure your organization by obliterating huge amounts of money, time and other crucial resources. Procurement fraud can occur for a multitude of reasons, some of which are mentioned below;
- Delivering customers certain goods of inferior quality, as opposed to the originally ordered goods, which is known as “product substitution”.
- “stealing money or property by a person who is in a position of trust, such as an employee or an agent” which is known as embezzlement, and
- Charging customers for goods or labor which they had not previously agreed on.
Generally, the above mentioned procurement frauds befall owing to an employee(s), either on one, or both the ends of agreement, colluding for a monetary gain by exploiting discrepancies in the purchasing process of their respective companies.
How Does a Procurement Fraud Affect Your Organization?
Referring to the figures released in a recent report, more than 29% of organizations have knuckled under procurement fraud, and even more astonishingly, it is estimated that there is an annual loss of $42 billion in the US alone! The numbers might be even more terrifying in our sub-continent.
The above stats signify that not only is the issue of procurement fraud reaching extreme, in fact it is running rampant across every industry. On a more finite level, a procurement fraud creates distrust within your organization, and will certainly have an adverse impact on your company’s spend management.
How can it be Stopped?
In order to combat procurement fraud, an organization must be comprehensively equipped with every tool possible to monitor spend management. Complete transparency and legitimacy should be ensured at every level. Moreover, shifting to an e procurement solution will undoubtedly benefit by budgeting and planning your spend more precisely, providing you with a clear view of the purchase purpose, the cost linked to it, and the vendor it is being purchased from. Therefore, with an e procurement solution in hand you can undoubtedly provide your employees with a rationale for their purchase.