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Procurement predicament

'Veils of trust' hinder detection



This aerospace case history illustrates how fraudsters are able to easily commit procurement fraud because they can hide behind "veils of trust" they have with organizations' employees and victims. Here's how to thrust back the curtains and let the light shine in on cozy arrangements.

Let's set the procurement predicament stage by introducing you to the employees of an actual California aerospace company, which we'll call GotoAero. They work within the company's building maintenance department and are responsible for ensuring the company's research and development (R&D) buildings are maintained within optimum environmental conditions. Their duties include monitoring building vibration levels, moisture changes, temperature consistencies and dust collection. External vendors, which the aerospace employees select and oversee, perform much of the specialized environmental maintenance work.

GotoAero has pre-negotiated purchasing agreements with five local vendors, and their employees have the option of selecting any one of these vendors for work. The company policy requires no less than three quotes (no matter the need) from the five vendors, and the aerospace employees are required to select the lowest bidder. The GotoAero policy also allows its employees to make these selections as long as the individual work orders don't exceed the established $35,000 threshold.

For the first year, GotoAero's employees followed the documented process of selecting the lowest bidder from no less than three authorized vendors. However, one by one they began accepting low-dollar gifts such as college basketball tickets and electronic gadgets in exchange for placing work orders solely through one of the five approved vendors, which we'll name BuildNow Pro Construction just for this article. Within six months, one greedy employee formulated a fraud scheme with the vice president of BuildNow to unnecessarily increase BuildNow's cost as much as $20,000 on multiple work orders in exchange for more expensive gifts, which had become (what we call) bribes.

 


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