You started your business to grow, support your community, and do meaningful work—not to navigate unexpected challenges like fraud. However, the reality is that small and mid-sized businesses can be just as vulnerable as large corporations. Without a legal or compliance team in place, it’s critical to stay informed and prepared.
Let’s break down three types of fraud that often slip under the radar: bid rigging, kickbacks, and overbilling. These aren’t just big-company issues—they can show up in everyday transactions. However, once you know what to look for, you can take simple, proactive steps to protect your business and keep things running smoothly.
What is Bid Rigging?
Bid rigging occurs when vendors who are supposed to be competing for your business secretly collude to fix prices or outcomes. You think you’re running a competitive bidding process, but it’s actually a set-up. Maybe one vendor submits a high bid so their “partner in crime” can win. Or maybe all the vendors agree to take turns winning contracts.
Why it’s a problem: You pay more than you should, the process isn’t fair, and your business gets manipulated behind the scenes.
Here’s what to watch for:
- Bids that come in unusually close to the same price.
- Bidders who don’t seem to care whether they win.
- The same companies always win contracts in a rotation.
- Vendors who appear to be working together outside the bidding process.
What are Kickbacks?
Kickbacks are under-the-table payments or perks given to your employees by a vendor or contractor in exchange for business. Think of it as a bribe that guarantees the vendor gets picked whether or not they’re the best option.
Why it’s a problem: It leads to inflated pricing, low-quality service, and serious trust issues inside your organization.
Here’s what to watch for:
- A vendor gets chosen repeatedly despite poor performance.
- An employee who seems overly friendly or defensive about a particular vendor.
- Missing or vague documentation around the selection process.
- An increase in costs that doesn’t match the scope of work.
What is Overbilling?
Overbilling is when a vendor charges you more than they should, either by exaggerating hours, padding invoices, or charging for things that were never delivered. It’s one of the most common forms of procurement fraud.
Why it’s a problem: It’s sneaky and can go unnoticed for months. Over time, those extra charges add up and drain your resources.
Here’s what to watch for:
- Invoices that don’t match purchase orders.
- Repeated billing for the same service.
- Charges for services or items you never received.
- Vague or confusing invoice descriptions.
How to Protect Your Business
Now that you know what these scams involve, here’s how you can prevent them from impacting your business:
- Tighten your vendor selection process. Don’t just go with the cheapest or the most familiar vendor. Use a formal process with clear criteria, a written RFP (request for proposal), and documented scoring. Keep the process transparent and involve more than one decision-maker to avoid bias.
- Rotate responsibilities. Ensure that no single employee controls the entire procurement or billing process. One person should request a service, another should approve it, and a third should confirm delivery or completion. Splitting duties reduces the risk of fraud slipping through.
- Perform surprise audits. You don’t need to run a full audit every week. However, conducting surprise spot checks on invoices, payments, and vendor performance can reveal red flags before they become big problems. Even the possibility of an audit can discourage bad behavior.
- Train your staff to spot red flags. Educate your employees about bid rigging, kickbacks, and overbilling, and encourage them to report any suspicious activity immediately. Ensure that you create a safe and anonymous way for them to speak up.
- Use technology to track everything. There are excellent software tools available that can help you track spending, flag duplicate invoices, and log procurement history. Plus, digital records are easier to audit and more complicated to manipulate.
What to Do If You Suspect Fraud
If you suspect someone is misusing your business funds, take action quickly:
- Hold off on any pending payments to the vendor.
- Gather and organize all related documentation, including emails, invoices, and communication records.
- Speak with a trusted legal or financial advisor for guidance.
- Consider reporting the issue to the appropriate authorities or industry organizations.
- Review your internal procedures and update them to help prevent similar issues in the future.
Don’t Let Scammers Set the Rules Bid rigging, kickbacks, and overbilling aren’t just industry terms—they’re real risks that can affect any business. But with strong systems in place, clear oversight, and a culture that values transparency, these threats can be effectively managed. You’ve put in the work to build your business, and protecting it through fair practices and trusted relationships is crucial to maintaining its strength and success.
