Examples of Common “Proactive” Fraud Detection Tests

Below are a few examples of relatively easy to conduct automated tests that can be used to detect indicators of:

1.   COLLUSIVE BIDDING 

2.   FICTITIOUS CONTRACTORS 

3.   QUESTIONABLE CONTRACTORS (by address checks)

4.   QUESTIONABLE CONTRACT AWARDS 

5.   FRAUDULENT INVOICES 

1.   TESTS FOR COLLUSIVE BIDDING:

  • Persistent high bid prices:
    Compare line item and total bid prices to estimates, prior prices, industry averages, etc.
  • Unusual bid patterns:
    Identify losing bids that are identical or an exact percentage apart, etc.
    Rotation of winning bidders by time, product line or geography
    Losing bidders become subcontractors
  • Sequential bid securities submitted by different bidders:
    List bid securities by contractor, bank, date and number

2.   TESTS FOR FICTITIOUS CONTRACTORS:

  • Paid vendors not on the approved vendor list:
    Compare paid vendor list to approved vendor list, note paid vendors that are not approved
  • Paid vendors not listed in business or telephone directories:
    Identify paid vendors not listed in business or telephone directories
  • Vendors at high risk (mail drop) addresses:
    Compare vendor addresses to high risk (mail drop) addresses
  • Sequential invoice numbers:
    Identify sequential invoice numbers from the same supplier over an extended time period
  • Discrepant invoice numbers:
    Identify suppliers with inconsistent invoice numbering systems, e.g., four digit numbers vs. six digits
  • Vendor address matches employees address or telephone number:
    Match contractor’s address and telephone numbers to project officials

3.   TESTS FOR QUESTIONABLE CONTRACTORS (by address checks):

  • Contractors: are located in or receive payments in secrecy jurisdictions:
    Match contractor business and bank account locations to secrecy jurisdictions
  • Have a “mail drop” (mail receiving service) address:
    Match contractor’s address to mail drop addresses
  • Have the same address as a debarred contractor or individual:
    Match contractor’s address to addresses for debarred companies and individuals
  • Have the same address or telephone numbers as project officials:
    Match contractor’s address and telephone numbers to project officials
  • Are located at the same address as another contractor:
    Sort contractors by address; identify matches

4.   TESTS FOR QUESTIONABLE CONTRACT AWARDS:

  • Contracts just under procurement thresholds and “split purchases”:
    Identify contractors with multiple contract awards within 5% of the procurement threshold
    Identify multiple simultaneous awards to contractors just under sole source thresholds (split purchases)
  • High cost contracts:
    Compare per kilometer costs in targeted road projects to the costs for similar roads and locations;
    Compare the square foot cost for construction of structures to the computer-generated norm for similar structures
  • Long term, open contracts with excessive disbursements:
    Identify contracts open for over 5 years that have disbursed more than 50% of the original contract valueBillings for goods and services not delivered:
    Compare items billed in supplier’s invoice to receiving and inventory records

5.   TESTS FOR FRAUDULENT INVOICES:

  • Billings in excess of contract, purchase order or received amounts:
    Compare items billed to contract, purchase order, receiving and inventory records
  • Duplicate invoices for the same items:
    Compare supplier’s invoices to payment records, note duplicate payments for same items