How to spot the red flags of procurement fraud

Fraud can be committed by anyone, including bid managers, senior executives, project managers or consultants working for your company. Fraud and misconduct are often difficult to spot because those involved typically take steps to conceal their actions. However, once you know the red flags to look for, it becomes easier to recognize. 

General behavioural red flags of fraud

According to the Association of Certified Fraud Examiners (ACFE), 84% of fraudsters exhibit distinct behaviours that, taken with other suspicions, can serve as warning signals for potential fraud. Some of these behaviours can also be unrelated to fraudulent activity, which underscores how difficult it can be to detect. The takeaway is that if you do have suspicions of misconduct and also observe behavioural red flags, it’s worth reporting so that appropriate investigative action can determine what’s actually going on.

The ACFE lists the following as the 8 most common behavioural clues: 

• Company pressure to sell, and do whatever it takes
• Living beyond means (example, sudden or unexplained wealth, buying a surprisingly expensive house, car or vacation) 
• Managers or executives get overly defensive or protective when asked about abnormal business decisions or contracts
• Financial difficulties (example, large debts, spouse losing their employment)
• Colleague insists on dealing with only one procurement contact with an organization
• “Wheeler-dealer” attitude (example, always trying to make a deal by whatever means necessary)
• Bullying or intimidation (example, forcefully gets others in the company to approve procurement decisions) 

See the ACFE's infographic on behavioural red flags of fraud for more information (PDF, 101 KB, in English only).

Specific red flags

In addition to general red flags, different types of cheating in federal government contracts have their own warning signs. Here are a few examples.

• Bid-rigging: Bid manager has increased communication with competitors around the time of a tender process; there are changes in normal bidding practices, such as not calculating cost estimates before submitting a bid
• Collusion between a supplier and a government employee: Contract decisions don’t make sense or lack justification
• Amendment abuse: Company frequently bids low to win the contract and successfully submits high number or high dollar amount of change orders or amendments to increase profits
• Overbilling by subcontractors: You become aware that a subcontractor is working on multiple contracts where the total hours they appear to be working would not be plausible (example, working 24 hours per day or excessive overtime)