Fraud scenarios in Purchase and Accounts Payable and methods to identify them:
1. In a case where amendments to purchase orders were not required to be approved in the System, an unauthorized amendment can be made to the purchase orders in favor of the vendor under a kick-back arrangement.
- Obtain log of amendments to purchase orders & compare with requisitions.
2. Where the responsibility of preparing / amending budget & ensuring procurement within budget limits is assigned to same individual, procurement in excess of budget can be concealed by unauthorized amendments to the budget.
- Check for frequent amendments to the budgets.
3. Where purchase invoices are passed without checking ‘goods received’ stamp affixed by stores, bills against which no material is received can be forwarded to the accounts payable team by purchase officer under a kick-back arrangement.
- Verify vendor bills for ‘goods received’ stamp. Compare log of goods receipt notes with vendor bills booked in ledger.
4. Where system of obtaining minimum number of quotations & preparation of comparative statements is not in place, the purchase officer may award order to vendors that charge higher than others without the management noticing.
- Compare rates of procurements with rates offered other vendors or market rates.
5. In case where access to vendor master is provided to personnel processing payments, unauthorized accounts can be created & payments can be made to such accounts without authorization. Further these accounts can be deleted later to conceal the unauthorized transactions.
- Check log of account creation & deletion. Also compare the log of goods receipt notes with vendor bills booked in ledger.
6. Where rights to access vendor master in System is not restricted, the database of vendors (including rates, terms etc.) can be downloaded & sold to competitors.
- Check if there is unrestricted access to the vendor master.
1. In a case where amendments to purchase orders were not required to be approved in the System, an unauthorized amendment can be made to the purchase orders in favor of the vendor under a kick-back arrangement.
- Obtain log of amendments to purchase orders & compare with requisitions.
2. Where the responsibility of preparing / amending budget & ensuring procurement within budget limits is assigned to same individual, procurement in excess of budget can be concealed by unauthorized amendments to the budget.
- Check for frequent amendments to the budgets.
3. Where purchase invoices are passed without checking ‘goods received’ stamp affixed by stores, bills against which no material is received can be forwarded to the accounts payable team by purchase officer under a kick-back arrangement.
- Verify vendor bills for ‘goods received’ stamp. Compare log of goods receipt notes with vendor bills booked in ledger.
4. Where system of obtaining minimum number of quotations & preparation of comparative statements is not in place, the purchase officer may award order to vendors that charge higher than others without the management noticing.
- Compare rates of procurements with rates offered other vendors or market rates.
5. In case where access to vendor master is provided to personnel processing payments, unauthorized accounts can be created & payments can be made to such accounts without authorization. Further these accounts can be deleted later to conceal the unauthorized transactions.
- Check log of account creation & deletion. Also compare the log of goods receipt notes with vendor bills booked in ledger.
6. Where rights to access vendor master in System is not restricted, the database of vendors (including rates, terms etc.) can be downloaded & sold to competitors.
- Check if there is unrestricted access to the vendor master.
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