COMBATTING PROCUREMENT FRAUDS
~Shrenik Shah
WHAT IS FRAUD?
WHAT IS FRAUD?
Universal
Our Belief
Financial
air
Reward
ecovery
Acquired
cquired
Under
nder Unfair
Deception
octrine
MATHSONFRAUD=MQ<(O+P)R
MQ – Moral Quotient = (W * IQ)
O – OPPORTUNITY, P – Pressure, R – Rationalisation
CLASSIFICATION OF FRAUD
PROCUREMENT FRAUD STATISTICS
Total Department wise fraud analysis (ACFE)
Types of Fraud
ATYPICAL FORENSICAPPROACH
ATYPICALAPPROACH– 7 EYE THEORY
Your Eye
❖ Skeptical Attitude
❖ Connecting Dots Perspective
❖ Investigative approach
Data Eye
❖ Data analytics - To identify duplications , irregularities , trends & patterns , Link Analysis , Joining Files , Fund Trail etc
Evidence Eye
Theory Eye .
❖ Without Evidence entire exercise is futile.
❖ Need to be proven in court of law
Digital Eye
❖ Digital Forensic is scanning of emails , hard disk , mobile phones and recovery of deleted files , password cracker & so on
❖ Gun Powder Theory
❖ Time Bomb Theory
❖ Inverse Logic Theory ❖ RSF Theory
❖ Benford’s Law Theory
Tool Eye
.
Network Eye
❖ Market Intelligence
❖ Surveillance & Covert Operations
❖ Tools play an important role while using investigative techniques –
❖ GST , Logistics Tracking Tool, Background Verification Tool etc.
PROCUREMENT FRAUD CYCLE
(Highlighted in
Start
Start
Submit request to purchasing department
Vendor Assessment & Due diligence
Vendor onboarding
Purchase Requisition
Submit request to purchasing department
Quotation (Comparison & Finalization)
Purchase Order
P2P –ASSOCIATED RISKS
✓Inflation of Procurement Budget
✓No /Faulty due diligence conducted
✓PO approved without PR and quotation –
Order in excess of needs
✓Vendor Creation prior to PO/GRN
✓Inadequate quotations obtained
✓Quotation comparison manipulations
✓Lack of industry healthcheck- Rate Variance
✓Vendor Favoritism- collusion with employee
✓Open PO for substantially higher period
✓Feeble vendor assessment –
Existing vendors
✓ Non adherence to DOA/SOP
✓Non-adherence to tolerance limit
✓On account payments
✓Regularization of backdated PO creation
✓Substantial Credit Notes
✓No blacklisting of inactive vendors
✓QC clearance on defective goods/Non-existence of QC process
Fraud by Vendors
Product substitution/ Inferior quality
Monopoly and price inflation
Collusion among vendors
Procurement Fraud
Fraud by Employees
Collusion between employees & Vendors
Fraudulent employees
Sequential invoices
Colluding on fixed prices
Kickbacks & Bribery
Bid Rigging
Duplicate Payments
Phantom Vendors
Conflict of Interest
Fictitious invoices
Falsifying vendor information
Falsifying vendor master details
PRACTICAL CASE STUDIES
Disclaimer : Names in following slides have either been masked or renamed for confidentiality purposes
(Vendor)-
1. ROTTENAPPLE CASE
Social Media profiling exhibiting relation between Mr. Aman and Mrs. Riya
Possibly Fabricated Evidences for RottenApples
2. FAMILY CARTEL – SHELL COMPANIES
SN’s Family Tree
Bivi Shahul H S Begum
Sindha Midar
3. PHANTOM VENDORS – VENDOR
INCAPABILITY & CONFLICT OF INTEREST
Snapshot of financials files by vendor
GRN as per MB51 of company data
Address of the aforesaid vendor raising suspicion over vendor capability
Rate Variation from average rate
4. VENDOR FAVOURITISM & KICKBACKS
Vendor
Helium Labs
Annexure A
Vendor
XYZ PROJECTS
Murti Institute
Annexure B
Sushmita Shah Utkarsh Shah
Director Director
Rajkumar Singh
Son of R.D Shah (Dean of Murti Institute)
5. VENDOR REONBOARDING CASE
Modis Operandi
JJAdvertising was identified earlier as a suspected vendor due to multiple malpractices and was blacklisted.
Onboarding of new vendor – Bakshi Media with same owner
Social Media Search for JJAdvertising shows Bakshi Media as a new brand of JJAdvertising.
Mr.Sharma is identified as the owner of JJAdvertising & Bakshi
Media along with identification of similar nature of services
Invoice verification highlighting that the invoices had same contact number & authorized signatory i.e.Mr. Ketu
Post blacklisting of Bakshi, same owner third another company
“XYZ Limited”
7. BID RIGGING
8. PROCUREMENTATTRIBUTING PERSONALADVANTAGE
Marketing Vendor
9. VENDOR VIGILANCE
RM Vendor
Equipment vendor
Vendor Surveillance Activity
Mystery Eye
❑Retail Shops
❑Unreasonable Structures
❑Part time business ❑Residential premises
Traders
Zero age business
Relocation
Malpractices
Non existence
Rate Variation
Rate Benchmarking
10. VENUE HIRE – COUNTERFEIT
INVOICES
MITIGATION STRATEGIES
PREVENTIVE
DETECTIVE
CORRECTIVE
Stringent Vendor Due Diligence Process
InternalAudit
Training &Awareness
Enabling quotation health check process
Surprise Vendor Surveillances
Frequent VendorAssessments
Pretext Operations – Rate Variance
Revisiting RiskAppetite at company level
Data analytics to find potential exceptions of perpetrator of fraud case & keep them under watch list
Segregation of Duties & RPA
(Robotic ProcessAutomation)
Implementing Whistle blower mechanisms
Implementing ABAC policy &
Taking action against violators
Frequently Asked Questions
What are some recent procurement fraud cases / What are some red flags?
What are the tools available in market for streamlining procurement process?
What are some other departments who can have connivance with purchase departments? What are some inherent risks that would not be mitigated even after deploying proper procedures?
PROSPECTS & DIRECTORIES
❖ ABAC- Revolutionary Regulation
❖ MCAstringent action on removal of shell companies
❖ Introduction of Forensic Standards
❖ AI and Data mining in forensic
.
❖ Men to men marking theory.
❖ Cluster Theory
❖ Un-orthodox Theory.
❖ Connect the dot theory
❖ Confirmation Bias Theory
❖ Time Bomb Theory
❖ Corporate Espionage
❖ Hydro Theory
❖ Orphan Fund Theory
❖Maths on fraud
❖ 7 Eye’s on fraud detection
❖CVC technique for fraud prevention
❖In-house Tools like- Mail
Scanning, SCAN, Mind Muneem
❖ Whistle – blow mechanismWhistle-Eye
❖Identification of procurement red flags
❖Practical Knowledge
❖Eye for detail readiness
❖ Procurement Tools & Software Knowledge
❖Leveraging social media for fraud identification
