Purchasing Fraud: Detection & Prevention Checklist

Reprinted with permission by the Financial Management Network.

by Leonard W. Vona, CFE, CPA
Director of Internal Audit for the Research Foundation, State University of New York

The potential for fraud during any phase of the purchasing cycle is enormous. To detect fraud warning signs and save your organization untold dollars, add these steps to your next procurement audit:

  • Focus your sample on the 3-5 year history of a particular purchase. What trends do you see and - more importantly - don't see?
  • Use the wealth of information available in public records and on-line databases, and access computer data analysis. Match employee files to vendor files to ensure no conflict of interest. Search files for a fraud trail by looking for important missing data, inconsistent data, unusual sequences, or illogical codes.
  • Check the history of disqualified vendors. Does a pattern of favoritism exist? Are dissimilar vendors being compared?
  • Identify restrictive specifications by comparing bid specs to a vendor's catalogue.
  • Focus on financial gain on and off the books Remember: nobody steals the liabilities.
  • Perform a risk assessment by expenditure type (i.e., equipment rental, ghost equipment, substitute equipment). Are they higher than fair market value?
  • Know the business/product you are auditing. For example, when reviewing a landscaping contract, understand the average cost to install a red maple.
  • Create sound vendor selection criteria and controls that will make future procurement fraud more difficult.

This article is reprinted from TranMISsion Online, with permission by the MIS Training Institute. Founded in 1978, MIS Training Institute is the international leader in audit and information security education. MIS offers leading-edge seminars, topical conferences, on-site training, and Web-based training at www.misti-online.com.

You may like these other stories...

For the first time in the five-year history of Vault.com’s rankings of the top 50 accounting firms to work for in North America, a firm has held the top spot as best accounting employer for two consecutive years....
With tomorrow being Tax Day, you might see some procrastinators at your office filling out forms, printing out paperwork, or getting last-minute tax advice from their accountant so they can meet the IRS’s filing...
You can read volumes on how to manage an accounting practice. But if you want the quick version, just read the following four points. Everything else is just commentary.  (These points come out of the 1997 book, The...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.