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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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Chapter 11

Procurement Fraud

Fraud in the procurement process is always a worry for management and auditors alike because it involves the fraud risk category of corruption, and corruption may be just as nebulous as it sounds. One reason for this difficulty is that collusion is found in most corruption-related fraud schemes, and we know from our discussion in previous chapters that collusion typically involves internal and external parties. It is the external part of this exchange that is the most problematic because outside party records are not accessible to the auditor.

Procurement fraud, for the purposes of our discussion, refers to the corrupting of the purchase decision-making process to ensure a specific vendor is awarded the contract. With numerous differences in these decision-making processes existing, it is critical for the auditor to know the industry and the types of procurement activity that is distinctive to an industry. Throughout this book, we have discussed how fraud auditing operates best by digging down to a class of transactions level, so the auditor needs to go beyond the required bid documents in order to understand how the documents can be falsified (i.e., they are corrupted). Specifically, auditors need to understand the business, how to be overt in their audit procedures, how the business process can be corrupted, and how to locate and recognize a corrupted decision. The immediate discussion consists of examples of each of these points. They may seem like ...

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