PwC: How Companies are Battling Procurement Fraud

Procurement fraud, a typical type of fraud, remains prevalent and poses a significant concern for businesses of all sizes and sectors worldwide.

The PwC Global Economic Crime Survey 2024 reveals that procurement fraud is among the top three most disruptive economic crimes globally in the past 24 months, following cybercrime and corruption.

While ample data and enterprise resource planning systems support diligence in procure-to-pay processes, advanced technology can also enable sophisticated procurement fraud by criminals.

Procurement fraud in numbers

• 59% of companies completed an enterprise-wide fraud risk assessment in the last 12 months and a further 12% plan to do so within a year.
• 72%: Nearly three-quarters say the board is regularly updated on efforts to investigate allegations or mitigate fraud risk.
• Close to a fifth of companies do not use data analytics in any way to identify procurement fraud.
• 55% reported procurement fraud is a widespread concern in their country, yet a minority are using available tools to identify or combat it.

Ryan Murphy, Global & US Forensics Leader, Partner, PwC US, says: “Companies have an opportunity to build compliance programmes that support businesses in maintaining trust and building resilience, contributing to the confidence to transform, invest and grow. With the right data and insights, risks can be taken with confidence.”

Expanding markets, increased risks 

As companies expand globally and into new markets or source from new countries, the risk increases, particularly when the location of operations are far from educational centres.

Finding qualified professionals for key roles can be challenging and implementing training on conflicting interests, procurement processes and fraud controls may be slow or irregular. To address these issues, management should reassess risk assessment procedures, intensify training efforts and consider improving controls that leverage data analytics and automation.

The PwC Global Economic Crime Survey 2024 revealed that nearly 20% of companies do not use data analytics in any way to identify procurement fraud. Industrial Manufacturing (IM) lags behind all other industries in this regard, signalling a significant opportunity to employ more advanced fraud detection techniques.

Technology, media and telecommunications (TMT) lead in analytics use, with companies using some form of analytics to identify procurement fraud, including analysing transactions before they closing and conducting real-time payment monitoring.

TMT’s analytics use likely contributes to why a fewer people in the sector report that the procurement fraud they experienced had a serious impact.

Understanding the impact of procurement fraud

More companies also lack awareness of the extent of their losses from procurement fraud. 32% do not attempt to quantify these losses, while 31% only do so on an irregularly. The TMT sector, as well as financial services (FS), leads in quantifying these losses, whereas IM trails, with only 17% assessing procurement fraud losses at least annually.

To mitigate procurement fraud risks, the majority of companies are enhancing processes related to documentation and authorisation, as well as revising vendor selection procedures.

Fewer companies are adopting data analytics, with the TMT sector standing out for its use of analytics to discover unusual bidding patterns.

The energy, utilities and resources (EUR) sector is also prominent in using analytics, showcasing the significant concern over procurement fraud. This is understandable given the sector’s involvement in major capital expenditure projects and challenging operational environments, which necessitate a robust approach to risk management.

What leadership can do

Given the complexity and constantly changing environment, senior management and board members should also have an active role in addressing the organisational plan for mitigating these risks. To accomplish this, we offer specific actions.

Legal and compliance

• Benchmark the compliance programme against most recent regulatory expectations and peer best practices.
• Revisit risk assessment processes to incorporate leading practices.
• Assess sufficiency of a third-party risk management approach.
• Support case for investment in analytics, including AI and GenAI.
• Ensure alignment with the CEO and board regarding the nexus between growth and risk.

Internal audit

• Identify strategies for collaboration with legal and compliance, including risk assessments and onsite audits.
• Consider data and technology tools that could be shared or co-developed.
• Identify areas where data analytics and automation can enhance controls.

Boards and business executives

• Reconsider if briefings on each type of risk are of sufficient frequency and insight.
• Help break down functional silos that may be interfering with effective compliance and risk mitigation.
• Encourage collaboration between first, second and third lines to increase efficiency and effectiveness.

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