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The Fraud Audit: Responding to the Risk of Fraud in Core Business Systems by Leonard W. Vona

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Appendix C

Fraud Audit Program: Procurement

Key Terms

1. Favored status—the vendor selection process favors a vendor without proper disclosure and approval. The favored status may have occurred by the virtue of a personal relationship with the vendor, company employee's prior employment, or an extended business relationship with the company. The scheme occurs with the knowledge of management.

2. Bid avoidance—structuring the procurement process to circumvent or avoid standard bidding requirements

a. Structured purchasing—the process of issuing multiple purchase orders to the same or related vendor; each order is individually below the bid threshold level with the purchase orders exceeding the control threshold in the aggregate.

b. Split bids—the process of awarding two vendors a purchase order for the same product to avoid the control threshold.

c. Contract amendment—the process of awarding the vendor additional work assignments without following the competitive bid process.

d. Sole source—the process of procuring goods or services without using the normal, competitive bidding process. The sole-source nature of the process implies that there is only one vendor that can provide the goods or services needed and that, in the end, competitive bidding would yield the same result.

e. Exigency purchase—the process of using an “exigency” condition(s) to bypass control thresholds and competitive bidding procedures.

3. Advance communication of information—the procurement officer provides ...

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