Contract and procurement fraud
Below is a list of red flags of material cost mischarging schemes
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| Below is a list of red flags of material cost mischarging schemes:
Previously delivered items are transferred from ongoing jobs to open work orders. Items scheduled for delivery in the distant future are transferred from ongoing jobs to open work orders. The contractor transfers items at costs that are substantially different (higher or lower) from actual costs. There are mass transfers of items from one job order to various other job orders. Materials, supplies, or components used in production are different than those used in the proposal or contract. The contractor includes unnecessary or obsolete items in proposals. The contractor charges costs to the original job order when there is no physical inventory left on the job site. There is an increase in transfers of items to inventory write-off or a scrap account. The contractor makes transfers to any type of holding account. The contractor does not properly account for the materials. There are initial billings for actual material costs in excess of negotiated costs. Later billings that show a downward adjustment in material costs as labour/overhead costs increase are evident. Improper billing costs become apparent. Vague terms are used to bid materials based solely on management’s judgment or rough estimates. The contractor failed to report excess or residual inventory. The contractor gives poor explanations for a high percentage of non-competitive subcontract awards. There is a lack of a clear audit trail to verify propriety of material charges. Weak internal controls over the shipping, receiving, and/or warehouse receipt for goods or services exist. Weak internal controls that allow numerous opportunities to adjust material charges are set. Download 0.62 Mb. Share with your friends:
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