The basic audit/detection methods to find Red Flags in procure-to-pay frauds are conducting surprise audits, creating Hotlines–to gather red flags and potential evidence (50% of detected fraud is by employee tip—highest in the world), ratio analysis: horizontal, vertical, entity vs industry, surveillance (in the mailroom, other key locations), regular internal audits (including assessment of effectiveness of anti-fraud controls) and Supplier verification and Supplier audit.
Procurement Fraud Red Flags
The common red flags of procurement frauds are consecutive invoices from the same supplier, unusual pricing from suppliers, sudden replacement of longstanding supplier; PO doesn’t match an invoice or delivery documents, unusual (personal) P-Card purchases, invoices missing a key detail and supplier address not matching the address on the approved supplier list.
Receiving Fraud Red Flags
The most likely red flags of Receiving fraud includes, late or missing deliveries, unusual patterns (exceptionally high or low) level of deliveries of specific items, PO details don’t match physical delivery, delivery of product from different (wrong) manufacturer, no three way match and complaints of defects from end-users.
AP/Disbursement Fraud Red Flags
Here are some of the common Red Flags of AP/Disbursement Fraud: Consecutive invoices from the same vendor, unusual pricing from vendor (kickbacks/bribery/bid-rigging), PO doesn’t match an invoice or delivery documents, vendor address matches employee address, unusual patterns in quantities purchased (bid-rigging), patterns of unusually frequent or high payments to long-time vendor (kickbacks) and a long-time vendor is suddenly replaced by a new one - (kickbacks).