Who is committing procurement fraud in Australia and New Zealand?

We actually know who it usually is, and it hurts when we find out.

By Dominic Frost

It’s a tough fact that the vast majority of procurement fraud and abuse is driven through employees. However it is a very, very small percentage of employees put organisations at financial and reputational risk through fraudulent behaviour or behaviour that tilts the system to their advantage.

It’s a fraud type we don’t want to hear or often know about. There are no winners.

A large majority of this fraudulent behaviour is often opportunistic or not deliberately planned initially, then the gains become too attractive to ignore. Procurement supply chains are complex and there are so many potential risks that internal controls, processes and procedures alone cannot prevent the risk of fraud.

But it’s not all doom and gloom.

Looking at some of the high-profile cases of fraud in Australia and New Zealand in the public and private sector, there were warning signs well in advance of the fraud being perpetrated. In the age of big data for anti fraud – we might have noticed access to ERP systems during odd hours, or perhaps matched suppliers’ director names and addresses to employee names and addresses and we triggered alerts on strangely high payments to low value contracts.

But this didn’t happen.

It didn’t happen because there is no on-going fraud detection. Organisations are relying on internal controls, processes and procedures with regular fraud audits to stop the risk of procurement fraud. It’s

not enough, because organised and often opportunistic fraudsters typically know the processes, thresholds and audit processes – so they can avoid detection. Audits take a sample, they don’t check every transaction.

Moving to a continuous monitoring fraud detection approach that uses business rules (like an audit on every transaction) but also advanced analytics and techniques such as machine learning to spot unusual behaviour, gives a level of protection that not only detects more fraud – but also flags early warning signals that could lead to fraud. This protects you against the organised fraudster as well as protecting employees who may be under external pressure from being opportunistic.

If 1% of your purchase ledger is at risk to fraud – which are the typical statistics for Australia and New Zealand – what’s the price of protection worth in your organisation? Forget the financial loss for a minute – reputation, management time consumed in legal cases and, worst of all, loss of human capital to your organisation. Continuous fraud prevention costs significantly less than 1%.

SAS Australia and New Zealand has a specialist team to advise and protect organisations on the risk of fraud and financial crime.

Author Bio: Dominic Frost works for SAS in Australia who have a specialist team dedicated to fraud and financial crime prevention and detection.