Procurement Fraud and Vendor Schemes Flashcards

When investigating a suspected procurement fraud, which document should a fraud examiner prioritize obtaining first?

Answer: Contracts, purchase orders, and invoices related to suspect vendors

Contracts, purchase orders, and invoices form the paper trail at the core of procurement fraud and establish the basis for comparing authorized versus actual transactions.

What is the primary purpose of a 'vendor audit right' clause in a procurement contract?

Answer: To give the buying organization the right to inspect the vendor's records for billing accuracy

A vendor audit right clause permits the purchasing organization to review the vendor's books and records to verify that charges billed match actual costs incurred.

Which behavioral red flag is commonly associated with employees committing procurement fraud?

Answer: Living beyond apparent means or refusing to take vacation

Employees committing procurement fraud often display lifestyle indicators inconsistent with their salary, and may avoid vacations that would require others to handle their duties.

In the context of ACFE's fraud tree, where do procurement and vendor fraud schemes primarily fall?

Answer: Both corruption and asset misappropriation depending on the scheme

Procurement fraud schemes span multiple branches: kickbacks and conflicts of interest fall under Corruption, while shell company invoicing and overbilling fall under Asset Misappropriation.

Which internal control weakness most commonly enables procurement fraud to occur?

Answer: Lack of segregation of duties in the purchasing and payment cycle

Allowing one employee to both authorize purchases and approve payments removes the cross-check that would detect fictitious vendors or inflated invoices.

What does 'bid suppression' mean in a bid rigging conspiracy?

Answer: Agreeing not to submit a bid so that a designated conspirator wins

Bid suppression occurs when one or more competitors agree to refrain from submitting bids so that a pre-selected conspirator wins the contract unopposed.

Which financial ratio or metric is most useful in detecting overbilling by vendors during a procurement fraud investigation?

Answer: Gross margin percentage by vendor compared to industry benchmarks

Comparing a vendor's gross margin percentage to industry benchmarks can reveal whether prices charged to the organization are significantly above market, suggesting overbilling.