The volatile market of oil and gas creates the perfect environment for fraud. When prices rise and fall, it can cause increases in spending, project shut-downs or delays, shifts in investments, loss of contracts, and more—all of which give rise to fraud. As a supply chain management professional, being vigilant about vendor fraud is a necessary part of protecting your project and company from unnecessary losses.
The first step to getting ahead of fraud is understanding how fraudsters can profit off of unsecured processes. Then you can take the necessary steps to prevent fraud and protect your company. So, how does vendor fraud happen in oil and gas?
How Vendor Fraud Can Happen
In short, dishonest vendors take advantage of weak points in a company's operations and look for ways to maintain or increase their business volume. There are a couple of ways that vendors can do this:
Take Advantage of the Invoice Process
When a company's invoice process is not dialed-in, vendors can present misleading invoices that result in additional charges. Examples of this include:
- Lack of detail in the invoice
- Invoicing for more workers or hours than was actually used for the job
- Duplicate invoicing
- Inconsistencies in the invoice such as dates, handwritten or altered invoices, not legible field tickets, etc.
An unethical vendor can pressure or persuade an employee to help them:
- Vendors offer kickbacks to employees in the form of money, goods, or experiences
Misrepresenting Work and Rates
Vendors can inflate rates of work, materials, and labor to gain extra profit from a job. Examples include:
- Higher than local average labor rates or higher job classifications
- Unnecessary charges such as unused equipment or material for the job
- Charging inflated rates for materials or services
- Charging for unnecessary services such as hauling and disposal fees
How Does Vendor Fraud Affect Your Company
When vendor fraud happens, it hurts your company’s operations and drilling costs, can cause lower quality work, increase financial risks, and create conflicts of interest within your company. When a vendor is hired because of employee manipulation, it means that your project is not getting the best possible vendor for the job. Plus, a vendor who is willing to engage in this behavior could indicate deeper problems that could put your site and project in jeopardy.
How Oil & Gas Can Prevent Vendor Fraud
Protecting your company and project from vendor fraud should be kept in mind when creating your operational processes and procedures. By implementing thorough processes, you can deter and catch vendor fraud before it happens.
1. Create Accountability and Transparency With Vendor Interactions
John Lipka, an oil and gas security advisor, touched on the problems that arise from the lack of accountability, “Almost every individual would commit some degree of fraud with the right combination of pressure, opportunity and low risk of discovery and punishment.” By implementing a system that naturally creates a process of accountability, it eliminates the possible fraud vulnerabilities.
2. Better Quote Tracking Processes
Poor quote tracking processes create a massive fraud vulnerability. But you can eliminate this vulnerability by implementing a procurement process that allows you to quickly submit multiple quotes, easily track the quote process, and understand market rates.
3. Successful Vendor Management
Keeping track of everyone you’re working with is an essential part of the job. By creating a vendor management process that you can easily manage vendors, check necessary safety requirements, and access previous job quotes and prices, you’re better equipped to spot fraud attempts.
More Visibility, Less Fraud
Overall, the more visibility you have into your operations, the quote process, and vendor management, the fewer the opportunities for fraud. You can improve visibility at your company by introducing technology into your planning and procurement processes.
With the right technology, you can gain visibility and efficiency through an easy-to-use digital site management, contact management, and procurement platform built for operations teams. This type of site management software helps you improve site and spend visibility while streamlining processes involving equipment sourcing, vendor management, quote tracking, and more.
If you are ready to learn more about how site management software from FieldEye can help you gain visibility into all sides of your operations, we can’t wait to chat with you.