Procurement fraud significant new category of economic crime in Slovakia

Procurement fraud has emerged as the most significant new category of economic crime in Slovakia, with 31 percent of Slovak firms reporting at least one experience of it in the past 24 months, according to the 2014 PwC Global Economic Crime Survey, which assessed procurement fraud as a standalone category for the first time.

“The reported high occurrence of procurement fraud exceeded even our expectations,” wrote the report’s authors Sirshar Qureshi and Michal Kohoutek. “As the detection of procurement fraud is difficult, it is probable that the actual occurrence is even higher.”

The most common type of economic crime remains asset misappropriation, which 54 percent of Slovak companies reported experiencing. However, asset misappropriation has seen a dramatic fall in occurrences since the survey was last conducted in 2011, when 94 percent of companies had reported experiencing it.

“This seems to support the belief that the traditional type of fraud such as asset misappropriation is still significant, however is decreasing in favour of ‘modern’ types of fraud, or the schemes used by fraudsters are becoming more sophisticated and thus difficult to detect,” the report warns.

Bribery and corruption matched procurement fraud as the second most reported category of economic crime in Slovakia, with 31 percent of respondents also indicating that they had been asked for bribes or encountered corruption over the past 24 months. This represents a 14 percentage point increase since 2011. Bribery and corruption are seen as the main threat to growth in the Central and Eastern European region as a whole, according to a separate PwC CEO survey.

While it has seen a 21 percent increase in reports of economic crime since 2011 Slovakia compares well with its neighbours overall. With 34 percent of respondents indicating that their company had experienced some form of economic crime over the last 24 months, Slovakia’s position is slightly below the regional and global averages of 38 percent and 37 percent respectively. In Poland the rate was 46 percent and in the Czech Republic it was 48 percent.

The rise in procurement fraud is possibly associated with an increasing tendency towards outsourcing, as well as the global trend towards interconnected businesses. The report identifies vendor and maintenance contracts as the key risk areas, but advises firms to be cautious whenever contracting external services or making purchases. The report also warns that procurement fraud usually involves an element of collusion among perpetrators, making such crimes especially difficult to detect.

“An increasing interconnectedness of business entities, together with more common outsourcing, makes companies more vulnerable to procurement fraud than ever before. Moreover, there are numerous ways procurement fraud can be committed. As a result, procurement fraud is one of the more difficult frauds to be detected and investigated,” the report reads.

In order mitigate risks firms are advised to develop strong internal fraud prevention procedures and conduct thorough due-diligence checks on suppliers.