Suppliers play an integral role in the operations of businesses as they provide the products and services needed to run. Thus, business owners strive to have positive relationships with them for smooth operations.
However, a supplier may commit some unlawful acts to defraud your company. Below are two ways you may experience supplier fraud.
Your company may be paying vendors who don’t exist. Unfortunately, for this to happen, a person inside the company may need to be involved to put the vendor’s name in the database, make purchase orders, approve invoices and process payments. The insider may receive kickbacks, bribes or gifts, and in some cases, they may not even receive any gain.
To avoid this scam, you should have a standard due diligence process that all new vendors must go through before being hired. It will be best for a third party to conduct this process. Further, you should go through your vendor database frequently, analyzing contact information, physical addresses and prices to spot any strange activities.
Fraud actions may occur during the suppliers’ bid processes. Suppliers may agree on who will submit the lowest bid (bid rotation), increasing their chances of winning or sending bids with unacceptable terms (complementary bidding).
Further, some suppliers may agree to refrain from bidding so that the “designated one” may win (bid suppression), or an insider may offer a supplier(s) information to prepare a winning bid (collusion).
It may help to get bids from as many suppliers as possible to avoid schemes. Also, you and your team should carefully evaluate all bids to identify aspects that don’t make sense.
Fraud activities in the supply chain can significantly cost your business. If you believe you have been defrauded, consider your options to protect your company.