Rigged Bids Drive Spikes in B2B Procurement Fraud

Procurement fraud is a growing problem in B2B transactions, and it’s even hitting Uncle Sam.

With the recent news that six IT contractors have been charged for their roles in “schemes to rig bids, defraud the government and pay bribes and kickbacks in connection with the sale of IT products and services to federal government purchasers, which resulted in overcharges of millions of dollars to the U.S. government, including the Department of Defense (DoD),” combating procurement fraud in B2B environments is top of mind for businesses looking to protect their bottom lines.

After all, as companies expand and supply chains grow more intricate, their exposure to fraud risks can increase.

Procurement fraud has many faces and often arises in supplier selection, contract management, and invoice processing, with common schemes involving bid rigging, fake suppliers, inflated invoices and even embezzlement and bribery.

As alleged in the Department of Justice (DOJ) indictment, the accused executives and their co-conspirators used their “positions of trust” to learn sensitive, confidential procurement information, including procurement budgets for large U.S. government IT contracts. That inside information was then used to craft bids at “artificially determined, non-competitive and non-independent prices,” ensuring certain contractors would win the procurement.

For companies looking to understand the scope of procurement fraud, recognizing the warning signs and strengthening their defenses is crucial. As with most flavors of fraud, an ounce of prevention is worth a pound of cure.

Read more: Invoice Invasion: Defending the Finance Department From Hidden Fraud Risks

Standing Up a Resilient B2B Procurement Strategy

For B2B firms, procurement fraud prevention isn’t merely a compliance measure — it’s a strategic advantage. A resilient procurement strategy strengthens the business, enhances trust with suppliers, and safeguards financial health.

One of the underlying reasons firms first fall victim to fraud? Manual processes and siloed departments that can create opportunities for fraud by obscuring visibility into transactions and approvals.

Fortunately, digital solutions are making it harder for fraud to go unnoticed. As procurement fraud schemes become more sophisticated, so do the tools to counter them. Enterprise resource planning (ERP) systems, automated accounts payable (AP) and accounts receivable (AR) platforms, and advanced analytics tools leveraging artificial intelligence (AI) can track and monitor procurement transactions, improving transparency and making it easier to spot abnormalities.

“Fraud is the biggest and most important thing we hear from customers today in B2B payments … They want more automation, as much as possible, and they want no fraud… They do not have the tools and that is why the fraudsters are attacking them,” Ernest Rolfson, founder and CEO of Finexio, told PYMNTS in an interview posted in July.

The PYMNTS Intelligence report “Automating Accounts Payable for Cost Savings” found that 34% of businesses process more than 5,000 invoices per month. Relying on legacy processes to manage this ever-growing invoice volume can leave firm more vulnerable than their peers that have embraced cutting edge solutions capable of mitigating procurement fraud by automating detection and enforcing internal controls, while also improving overall procurement efficiency.

See also: Why Business Email Compromise Scams Target Valuable B2B Relationships

Understanding Procurement Fraud and Its Complexities

Procurement fraud can take many forms and is often orchestrated by individuals with insider knowledge, making it difficult to detect. Common types include:

False billing: Submitting invoices for goods or services that were never provided.

Bid rigging: Manipulating competitive bidding processes for personal gain.

Kickbacks: Financial incentives or gifts given to influence procurement decisions.

Duplicate payments: Making multiple payments for the same invoice, often intentionally.

The diversity of fraud types underscores the challenge for businesses. Traditional fraud detection methods may only catch blatant inconsistencies, allowing subtler forms of fraud to go unnoticed. As fraud schemes grow more complex, advanced technologies are becoming essential in staying one step ahead.

“Fraud is growing as fast, or faster, than the pace that the overall B2B market is growing,” Eric Frankovic, general manager of business payments at WEX, told PYMNTS. “As the supply chain broadens and branches out, there’s just more access and entry points for fraudsters.”

AI and machine learning (ML) take fraud detection to the next level by enabling predictive analysis. Unlike static rules, AI-driven models can adapt and learn from new data, making them increasingly effective at identifying nuanced fraud patterns.

These models become more effective over time, as they continuously refine their understanding of normal procurement activities and abnormal patterns, which might signal fraud.

“What you want to do is catch it before it becomes a crisis,” said Rick Kenneally, chief technology officer at Boost Payment Solutions. By partnering with companies that provide early warnings about threats and scams when they see them independently, businesses can stay ahead of potential threats.

And the benefits of digital innovations in procurement extend beyond fraud prevention. Automation and AI bring a level of efficiency to procurement processes that manual efforts can’t match.

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