Businesses should invest to tackle rise in procurement fraud, says expert

Commercial fraud expert Andrew Herring of Pinsent Masons, the law firm behind Out-Law.com, said the findings of a new report into the scale of procurement fraud in the UK showed that companies had to respond appropriately to a continued rise in the amount of fraud carried out by organised criminals as well as dishonest employees.

Software provider SAS said in their 2019 analysis of procurement fraud (15 page / 4.4MB PDF) that 26% of organisations claimed to have lost up to €150,000 annually as a result of procurement fraud or processing errors. A total of 4% of companies responding to the SAS survey said they lost over €400,000 a year.

However 40% were unable to calculate their exact losses from fraud each year. SAS estimated that 4.8% of company expenditure in the UK could be saved if fraud was prevented, but said actual losses were likely to be much higher than the amount businesses were reporting.

"Commercial fraud is undoubtedly under-reported in the UK, and what is picked up in reports is very likely to be only the tip of the iceberg," Herring said.

"Businesses are being targeted increasingly by fraudsters - both externally by organised crime and internally by dishonest employees. The cost to the UK economy of fraud is many billions of pounds," he said.

SAS said that while almost half (46%) of businesses said they held regular internal audits, "many" excluded internal fraud from their remit. Around a fifth of the organisations surveyed undertook an annual audit including internal fraud.

The report said it was worrying that a third of businesses either did not audit for procurement fraud or did not know what processes covered it. SAS said there was an over-reliance on human investigations and more companies should automate the audit process, with 43% of the companies actively monitoring for procurement fraud using manual processes.

The survey also found due diligence checks were conducted "sporadically" with only 7% of companies conducting supplier due diligence checks every time they start a new project or transaction, and 5% every time they onboarded a new vendor.

Pinsent Masons' Herring said companies should make sure they invest time and money in a bid to stop fraud before it happens.

"Prevention is better than cure, and we would encourage businesses to invest in human and technological answers to protect against the risk of being defrauded," Herring said.

"However, in the worst-case scenario, businesses must also be prepared to invest in remedial strategies to recover their losses and protect their reputation by sending the right signal to employees, customers, suppliers and their markets that fraud will not be tolerated." "Specialist legal advice is recommended to tailor the right strategy on a case-by-case basis and maximise the possibility of recovering assets and losses from fraudsters and their accomplices," he said.