By Jennifer Chang      Photo：Tima Miroshnichenko

In the daily business , every company generates many transactions to support its business operations. Whether it is a major business activity, a logistics service or a simple daily resupply, procurement is not only frequent but is now done almost exclusively electronically, which  increases the risk of fraud in the procurement process. The impact of procurement fraud on global logistics supply chain companies, especially in today's fast-paced digital environment, is conducive to the development of this fraud. Effective due diligence is critical to reducing the risk. There are many common procurement fraud schemes. There are two main types: duplicate or fake invoices, and false suppliers.

1.    Duplicate or fake invoices

This invoice fraud involves the intentional submission of false, duplicate or misrepresented invoices claiming to be a known vendor or contractor. In reality, it is submitted by a fraudster who infiltrates our business processes to defraud businesses of amounts that should not be paid. Invariably, any money paid is subject to the control of the fraudster. Erroneous transactions are discovered over a period of time, before the money has been transferred, usually through a series of other bank transfers, and then the money disappears. This type of fraud has a degree of sophistication that dissects the type of business transactions, with whom, and at what frequency they are done. The victim is profiled, infiltrated into the email system, and the electronic file is tampered with to create an invoice that appears to be genuine. And fraudsters can use nearly identical email addresses and familiar mailings to disguise themselves as a known contact. They may claim that an invoice has expired, or that there will be a negative impact on a business's credit rating or business reputation, and threaten legal action in the event of non-payment to force payment to be completed.

2.    False suppliers

Fraudulent vendor procurement is an insider threat involving a person who has access to critical information and systems and has sufficient operational knowledge to conceal his or her actions. The fraudster, usually an employee, creates a fictitious vendor in the account system. The fictitious vendor submits invoices, which are duly reviewed and paid as if they were real. This type of fraud can be difficult to detect, depending on the size and structure of your business. It can be very difficult to spot a fictitious company or business during busy times, especially if the business is understaffed or telecommuting. Fraudsters often research the victim company so that they can strike at a weakest time.

Regardless of the value or frequency of the purchase, or whether our suppliers are in the same country or in a region of the globe, the basic principle of due diligence is the same: we must know exactly who we are dealing with at all times.  How can we avoid procurement fraud? There is nothing more to it than regular discussion of fraud-related content within the organization so that employees have the ability to question and maintain the mindset to pursue suspicious matters. Be alert to insider threats and have an effective reporting process. Develop a multi-step payment authorization process; don't rush payments, "take a break" first. Establish a rigorous verification process for any changes to existing account information. Double-check bank statements and raise any suspicions with the bank. Most importantly, take this seriously: even the most experienced employees can be deceived.

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