A few months ago, a wholesale construction supply distributor uncovered a few “red flags of concern” – troubling signs that a member of its procurement department was engaged in fraudulent activity. It turned out they were right – but they uncovered this information too late to prevent the embezzlement of millions of dollars. The greatest consequences included the damage to the company’s brand and reputation – and the financial value of opportunities lost during the period these activities unfolded and, arguably, since then.

Small liberties become big lies

Remember: fraud and deception start with small steps – like tickets to a sporting event or a weekend vacation. In effect, the employee is testing the company’s ability to detect specific activities.

  • As time goes by, the employee becomes more ambitious and the theft increases in size, importance and frequency.
  • An employee passed over for promotion or raise might feel “entitled” to their fair share. They start to manipulate contracts and make awards to those willing to engage in kickbacks.
  • Eventually, the cost to a company can grow into the millions – as it did in this case – particularly if the individual works in procurement, one of the highest risk areas for fraud in many industries.

The best antidotes

Proactive measures can eliminate contract fraud. Don’t expect one tool or another to close these windows of vulnerability. A calculated and layered approach is the best practice. Like pre-employment background screening. Ethics training. Financial disclosures. And transactional due diligence. Together these represent a few of the solid building blocks of a best practice-based integrity program. One of the most critical anti-fraud strategies involves implementing robust buyer and vendor integrity programs. It’s important to examine both the buying and the selling side of the transaction. In order to effectively safeguard against procurement fraud, you really have to cast light on both sides. Checking on your employee is only half the task. It’s like trying to wash only one hand. You can’t get clean if you don’t soap up both.