52% of all fraud is perpetrated by a company’s interal staff and 24% of reported internal fraud was committed by senior management

Source: PWC’s 2018 Global Economic Crime and Fraud Survey

Different Methods of Sourcing Fraud

So let’s be serious for a moment (just one I promise!).  This isn’t intended to give you ideas by any means.  It is to bring awareness to this growing epidemic of internal fraud. Which is quite perplexing given the technological advancements and security requirements that most large companies have in place.

You would think the problem would be shrinking, but it just isn’t so. PWC’s survey shows “49% of organizations globally said they’ve been a victim of fraud (up from 36%)”. That’s a hell of an increase in two years (2016 to 2018). But go back to the beginning of what sourcing fraud is defined as.  And how some employees get a little bit extra of that company dime.

Examples

1. A vendor submits invoices for more than the value of the product. Split the difference with your inside man who is approving them along the way.

2. Create a company with a similar name to one currently in the system that you use. Submit invoices for your own approval and make sure the wire payment is to your bank account.

3. You leak the information of an upcoming RFP to a supplier to give them an edge over the competition.  They literally repay you. Preferably cash.

4. Expense fraud. Inflate or forge receipts. Double claiming. Take the overage.

5. Just forge yourself a check. Why not? You deserve a bonus!

Enforcement data from the US National Procurement Fraud Task Force suggests that bid-rigging, bribery, embezzlement, and submission of false invoices are the most common schemes.

Source: SAS Procurement Integrity

Epic Tales of Sourcing Fraud

In 2010 Comedian Dane Cook’s half-brother Darryl McCauley (business manager) and sister-in-law embezzled $12 million from him. He even went so far to write himself a $3M dollar check and forged Dane’s signature in the process. But don’t worry, he’s got a six-year prison sentence to think about how much fun attending those upcoming family reunions are going to be.

In 2017 Netflix released the Documentary “All the Queens Horses” where Rita Crundwell (former comptroller and treasurer) embezzled $53M from the struggling small town of Dixon, Illinois over a 20 year period. She hid the money in plain sight with extravagant parties, Thoroughbred horses and an enormous estate.  I mean you can totally afford a $2.1 million dollar motor home on an 80k salary, am I right?

There was also the $100M+ scam on Google and Facebook where the scammer just ASKED for the money by invoicing them and using phishing emails. These are just a few stories that have gained national attention. There are tons more of sourcing fraud activities that never make it to the front page of the new. Which begs the question: Why is this type of fraud on a smaller scale, such a dirty little secret?

Reasons it’s Remained a Secret

1. Technology. It exposes a flaw in the system, that hasn’t been fixed (or can’t due to financial constraints, etc.). 

2. Embarrassment/Reputation. It’s a scarlet letter for the company and a bruised ego for the executive or hiring manager who selected the employee.

3. Cost. Some small businesses can’t afford the software needed to prevent the fraud. Which is ironic since that’s where the majority of cases are found.

4. Fearful. A lack of standard operating procedures or accounting controls can lead some of the executives open to legal exposure. Being complicit or the perception of it is a nasty thing. 

5.  Not a Requirement. I’m personally not aware (or could find) anywhere that states you have to report this to the press.

For now, it appears that Sourcing Fraud (on a smaller scale) may be kept to office gossip and watercooler tales.  Which is despite the technology, audits, and advances that have been made to defend against it. When you have trust in the workplace, companies are bound to be left exposed to it. Because if we know anything, people are bound to find new creative ways around technology when it comes to personal gain. And that little fraud monster lurking in the shadows will find a way in!

Check out other another blog on transparency here: LINK