Today businesses work interconnectedly, they avail tech innovations in scaling their network across borders. Therefore, organizations have a high workload and mostly outsource their tasks to third parties. Other than outsourcing company work, many organizations rely on third-party vendors for various services and products. Businesses are vulnerable to different kinds of vendor fraud, and they require effective measures which can help in securing their landscape from fraud attacks and criminal activities. 

Vendor fraud is linked not only to external third parties but also to internal employees and other associated organizations. Many vendors provide an external server, database, and products to businesses, and they play a vital role in the overall business security and growth. 

Different Types of Fraud Associated With Vendors

Here are some common fraud types which businesses may face when they obtain third party assistance: 

Collusion

Collusion refers to any secret agreement between parties which is made to act illegally for personal benefits. When it comes to vendor fraud, many third-party suppliers agree to fix a price for their service or goods that is much higher than its actual price. In this situation, a business is forced to get the assistance of a third party at a higher price. In another scenario, when two or more vendors rig a bid to win a contract, it comes under the definition of collusion. Bid rigging increases the prices of products or services more than the average ones, and it leads to serious financial issues for organizations. Companies have to obtain third-party assistance, but in such a situation, they are forced to avail services at a high rate. It mainly affects organizational financial stability. There is a need for proper measures from the side of regulatory bodies to overcome this issue of vendor fraud. 

Payment Fraud 

When it comes to payment fraud in dealing with an external third-party vendor during any contract, it is not only from the side of the third party. Many times a company’s own employees can be part of it. There are two major ways in which an internal employee can perform payment fraud. An employee may create a fake vendor account, which can make an organization a victim of heavy financial loss and payment fraud. This is how a fictitious vendor entity within the corporation can lead to payment fraud. 

Many times, internal employees utilize actual vendor information to manipulate payment records, and they make duplicate payments. They often direct second time transactions to their personal accounts and make an organization a victim of payment fraud. 

Many third-party vendors are not reliable entities, they have fake profiles and reach out to organizations just to obtain heavy funds. Many companies get trapped by fake vendors and suffer payment fraud by transferring heavy amounts in advance. Advance payments are not always risky, but it is necessary to thoroughly screen a third-party vendor for advance payments and contracting. 

Data Breach

Third party vendors often make business victims of data breaches by exposing their information to competitors to obtain heavy amounts in return. Organizations that utilize external parties as cloud servers. It is very important to utilise effective means that perform through investigation before sharing confidential information. Data breach is a major issue that comes from the side of the third-party service providers. There is a need for effective means for vendor screening and evaluation. 

Poor Quality Service 

Businesses often avail themselves of products from outside vendors, which require strategic consideration before onboarding and making transactions. Quality of service relay matters to maintain organizational reputation. In case a business gets low quality from the vendor, it can face its reputation and image. 

Solution for Vendor Fraud Prevention

To prevent vendor fraud, businesses can utilize the following services:

Know Your Vendor (KYV) Service 

Know Your Vendor (KYV) is an all-in-one solution which organizations can utilize to secure their landscape from vendor fraud. It ensures vendor screening and helps organizations to onboard secure and reliable third parties to obtain their services. 

Vendor Due Diligence (VDD)

Vendor due diligence is the process which enables organisations to evaluate potential suppliers or vendors. It helps to investigate vendor compliance status, its credibility, and ensure risk management services. VDD service enables organizations to ensure compliance with regulatory requirements and ensure financial stability through fraud prevention. 

Final Words 

Many businesses avail themselves of third-party assistance for various operations or to have their services and products. Therefore, colonies are often exposed to different kinds of vendor fraud. Therefore, it is necessary for organizations to utilise solutions that can help them in fraud prevention. Know Your Vendor (KYV) and Vendor Due Diligence (VDD) services play a vital role in the overall business security of an organization. KYV and VDD help organizations to thoroughly screen vendors and onboard legitimate and fair entities.