Recognizing Vendor Fraud

Video Transcript

Welcome to this week’s Third Party Thursday! My name is Kelly Vick and I’m the President here at Venminder. Today’s topic is one we don’t like to think about, but one that occasionally happens -  vendor fraud. We’re going to talk a little bit about vendor fraud and how to recognize it.

We all go into new vendor relationships excited and looking forward to a great working relationship.  We’re confident that this will be the best of all possible situations and we’re off to the races. However, sometimes, despite all of the due diligence and all of the discussion, vendor relationships go awry. Most times, it’s just a normal every day situation, like changes in financial condition or losing focus on a product or service. Those are easy to deal with compared to vendor fraud.

How can you recognize vendor fraud? Vendor fraud has many symptoms, usually starting with the business line manager saying that something just doesn’t seem right about how things are going, like:

• The vendor is starting to return odd results
• They are offering inconsistent or inaccurate explanations
• Are being slow to respond
• They’re dodging your call altogether

All of these are indications of a situation you need to investigate. If it’s real vendor fraud, you may find some other things such as:

• Overselling and under-delivering a product
• Their sales spike
• Their inventory and/or support drops
• Customer complaints soar

Often by then, it’s too late - a good lesson for every vendor owner or product manager is to meet early and often with the management team of your vendor. This is a best practice for any new vendor relationship but especially when sales results seem too good to be true.

Additionally, looking at regular reporting is an absolute must. This can be an easy early warning sign of things not falling into the right pattern. That is, assuming the reporting is accurate and can be trusted.

Another common way to detect potential vendor fraud (after an early warning sign) is to make an onsite visit. While all of your due diligence fact gathering might come back clean – a visit might unveil concerns that could have remained hidden for quite a while.

Sudden changes in behavior by key management is another easy to spot area of concern – maybe it’s nothing but if you couple that with some of the other signs, could be the sign of real trouble. 

And lastly, watch customer complaints, particularly those that indicate that the product or service wasn’t provided in the manner described – you can even do your own mystery shopping to help flush that one out. In this age of everything "social", searching for customer complaints is easy and should be done routinely – especially on your critical vendors.

Vendor fraud is never fun – it’s an awful experience. And even if you have the best contract that allows you an easy "out" if vendor fraud occurs, it’s ultimately your responsibility to protect your company and your customers.

Again, I’m Kelly and thanks for tuning in to this week’s third party Thursday; if you haven’t already done so, please subscribe to our series.