 The true test of whether a corporation’s internal controls environment is effective and

its ethics and compliance program is robust is when it faces possible collusion
between vendors and employees or learns of demands for kickbacks

 Procurement fraud is perpetrated by individuals with significant operational

knowledge of the systems and processes they abuse and that offender tend to operate
"under the radar."  Hence, complying with and monitoring policies related to bidding
processes, information management systems, vendor maintenance, and invoice and
payment processing can create opportunities for abuse, making it difficult to detect
and prevent abuse and fraud. Examples of potential red flags for procurement risk
include:
Information management

 Inconsistent data compiled across procurement-related systems

 Significant data quality issues relating to spend data and vendor data

Procurement process

 Lack of controls around use of preferred vendors, negotiated contracts

 Low compliance with corporate preferred buying guidelines

Vendor maintenance

 Multiple instances of the same vendor within master data

 Inconsistent vendor payment terms across the organization

Invoice and payment processing

 Duplicate payments
 Inefficient invoice processing

 Perform periodic due diligence of vendors using a risk-based approach.

 Analyze procurement trends, payment patterns, and changes in the mix of products
and services procured to find indications of wasteful or collusive behavior.

“… Inactivity - the biggest risk of all”