R&D stakeholders trust procurement professionals to operate with their best interests at heart. But unfortunately, procurement is sometimes the unexpected culprit of bribery, corruption, and collusion — hiding in plain sight. Research shows that businesses lose around 5% of spend per year to procurement fraud, with annual losses ranging from $10,000 to $150,000. Worse, 33% of leaders are unaware of the danger and unable to say how much they lose from it. Continuous monitoring and effective controls are the best weapons to prevent procurement fraud, but are time-intensive and failure-prone due to human bias and error. Luckily, life sciences has powerful allies in the fight against procurement fraud through the use of artificial intelligence (AI) and lab supply marketplaces.
Procurement fraud occurs when an employee, partner, or supplier behaves unethically or deceptively for financial gain or advantage.
Procurement fraud is one of the most commonly reported types of organizational fraud. Since there are many steps in the procurement process that are vulnerable to bad actors, it is critical to become familiar with the main categories of procurement fraud, including:
The Association of Certified Fraud Examiners (ACFE) uses the concept of the fraud triangle to explore the contributing factors to employee fraud.
By understanding the motivations and rationale behind procurement fraud, organizations can improve their fraud detection, monitoring, and mitigation exercises.
Of course, companies should watch for fraud regardless of their stage, but fraud prevention should be prioritized as labs scale. A startup’s procurement process is usually more transparent and limited to a small number of touchpoints. As companies scale, the process becomes more cumbersome and data more siloed. With the addition of employees, locations, budget, and steps in the supplier approval chain, visibility into employees’ daily activities becomes more obscured and fraud gets easier to conceal.
The level of procurement process automation can also impact the potential for fraud; the more automated the process, the less opportunity for fraud.
The best offense is a good defense. The key warning signs of procurement fraud are:
Manual fraud detection using dashboards and reports is not only time-consuming, prone to error, and insufficient, it can in fact, serve to worsen the risk of fraud. AI-driven data analytics can identify complex patterns and anomalies in procurement data not visible to humans, using machine learning (ML) to analyze historical transactional data and detect inconsistencies, raising red flags for further investigation. AI can be used in multiple ways, such as:
Benefits: AI-powered tools enhance fraud detection by analyzing large datasets in real-time, quickly identifying fraud risks and patterns that may elude human detection. This not only increases accuracy but acts as a deterrent to potential bad actors. AI’s continuous learning capabilities adapt to evolving fraud patterns, minimizing false positives and negatives.
Limitations: No one AI solution currently addresses all complexities of the procurement lifecycle, and undocumented, subjective aspects like business case justification pose challenges for electronic detection. AI can combine and monitor data from across the business, including supplier onboarding, bidding, contract management, and invoicing, to identify procurement fraud risks; however, developing effective machine learning for detection requires a substantial quantity of well-trained historical procurement data. While AI augments procurement processes, ethical use with human oversight is crucial for transparency, fairness, and efficiency in preventing fraudulent activities and financial losses for organizations.
Only 17% of organizations are using AI to detect procurement fraud, citing expense, training, lack of internal ownership, and preference for manual monitoring as barriers to usage. Making procurement processes as automated, transparent, and objective as possible can help labs prevent a level of fraud.
With a lab supply marketplace, such as ZAGENO, users can experience a fully automated, transparent lab supply purchasing process, removing the blind spots and loopholes in which procurement fraud can lurk. End users can build a cart from millions of products across thousands of pre-vetted suppliers with one sole vendor of record and one consolidated invoice each month. Features include three-way matching, streamlined approval flows, risk-vetted suppliers, automated vendor set-up and management, order placement automation, consolidated product liability terms and vendor due diligence, and a clear, real-time audit trail.
With ZAGENO's lab supply marketplace, you can experience a transparent, automated procurement process, eliminating blind spots and loopholes where fraud may occur. Don't let fraud jeopardize your precious resources—contact ZAGENO today for a secure and efficient lab supply procurement process.