Procurement Fraud: Common Schemes, Red Flags and the Controls That Stop Them

Every euro a company spends passes through procurement and accounts payable. That makes purchase-to-pay one of the most attractive areas for fraud — and one of the most rewarding for prevention.

Five schemes we see most often

1. Kickbacks and corruption

A buyer steers contracts to a supplier in exchange for a personal payment or benefit. The supplier recovers the cost through inflated prices, lower quality or extra volumes.

Red flags: single-source purchases without justification, prices above market, a buyer who insists on handling one supplier, lifestyle changes, gifts and hospitality outside policy.

2. Bid rigging and tender manipulation

Specifications written so only one supplier can win, tenders split to stay under thresholds, late bids accepted, or competing bids that are suspiciously similar.

Red flags: the same group of bidders rotating as winners, identical errors or formatting across “competing” offers, frequent contract amendments after award.

3. Fictitious or shell vendors

An insider creates a fake supplier and approves invoices for goods or services that never existed.

Red flags: vendors with no web presence, a home or P.O. box address, bank accounts matching employees, invoices with sequential numbers, services that are hard to verify (consulting, marketing).

4. Overbilling and duplicate invoicing

Real suppliers — sometimes with internal help — invoice more than agreed or submit the same invoice twice.

Red flags: invoices without purchase orders, slight variations in invoice numbers, price-to-contract mismatches, payments just below approval limits.

5. Conflicts of interest

An employee or their relative has an undisclosed interest in a supplier.

Red flags: shared addresses or directors between suppliers and staff (identifiable through trade-register data), reluctance to complete annual conflict-of-interest declarations.

Controls that work

• Vendor onboarding due diligence — verify legal existence, ownership, bank account and sanctions screening before first payment.
• Independent vendor master maintenance — separate from purchasing and payments.
• Competitive tendering rules with documented justification for single-source purchases.
• Three-way match of purchase order, receipt and invoice.
• Approval limits enforced in the system, with monitoring for split purchases.
• Annual conflict-of-interest declarations and periodic checks against registry data.
• Data analytics — duplicates, Benford’s-law analysis, vendor–employee matching, round amounts, payments outside business hours.
• Rotation of buyers on key categories and mandatory leave.

Procurement fraud is rarely sophisticated; it succeeds because nobody connects the dots. A targeted forensic review of purchase-to-pay can test years of transactions in weeks and tell you whether there is something to worry about.