Procurement fraud has always been a risk for local councils, but right now, it is growing and evolving in ways many are not equipped to detect.
Recent cases across NSW (1) have highlighted just how exposed local government can be, and the consequences – financial, reputational, and operational – are placing increasing pressure on councils and the ratepayers they serve.
However there are key themes that when understood, can reduce risk says audit and risk specialist Tom McLeod, including fraud patterns that put local government at risk, recurring control gaps across jurisdictions, and the critical need for practical controls like payee confirmation and bank account verification.
Why procurement fraud is on the rise
Procurement fraud is not new, but the environment around it has significantly changed.
McLeod, who analysed 14 to 15 audit and oversight reports from Auditors General and Ombudsmen across Australia and New Zealand, says "there is a consistent pattern: fraud is predictable, but its harder than ever to detect."
Several factors are driving the elevated risk:
- Cost-of-living pressures are increasing the motivation to commit fraud across both staff and suppliers.
- Digital complexity and faster procurement cycles are creating new blind spots in approval and payment processes.
- AI is being used to produce fake invoices and supporting documents that are increasingly difficult to spot manually.
- Fraud methods have evolved beyond obvious theft – they now hide in the gaps between teams and processes, leading to the familiar 'I thought you were doing it' problem.
"It's no longer defensible to say ‘we think we're okay’ and hope for the best. There technology and tools are available - we’re in the evidence-based monitoring era and local councils need to be taking advantage of that to reduce their risks around procurement fraud," says McLeod.
Why councils are more at risk
Most councils have a procurement policy, a conflict of interest (COI) register, and tender procedures. The problem is these often become ‘compliance theatre’ – paperwork exercises rather than active controls. Many councils look compliant on paper while in practice, controls are failing.
Tom says there are five recurring gaps across jurisdictions:
- Control breakdowns. Policies only work if someone actively checks and acts on them, especially under operational pressure. Segregation of duties across supplier setup, approvals, and payments is frequently bypassed.
- One-size-fits-all frameworks. A small rural council and a large metro council have completely different risk profiles. Blanket policies do not account for local conditions.
- Delayed reporting. Where staff feel unable to raise concerns, losses grow quietly for months or years before anyone acts. Culture drives detection speed.
- Weak probity foundations. A COI register is not proof of control, it’s proof that a register exists. Without active follow-up “good decisions now can look very bad later,” says Tom.
- Order splitting. Breaking purchases into smaller transactions to avoid approval thresholds is still one of the most common methods – and it happens every day.
Risk also does not end at contract award. Variations, bank details changes, and the absence of payee confirmation on new or amended supplier accounts are live risk points that go unmonitored once procurement is deemed complete.
Practical steps councils can take to prevent fraud - without adding red tape
The good news is that prevention does not require a complete overhaul. It requires smarter monitoring, better controls at the right points, and the right tools. McLeod's recommendations fall into three areas:
1. Shift to risk-based procurement governance
Make policy work. Map your procurement lifecycle end-to-end and identify your highest-risk control points – particularly around money movement. Risk-based rules beat blanket compliance checklists. Fix the highest-leverage gaps first – prioritising bank account verification, approval thresholds, and money movement controls – and make sure policies are realistic enough for staff to follow under pressure, not just in ideal conditions.
2. Improve controls
System controls beat policy controls every time. Key priorities include:
- segregation of duties across supplier setup, approvals, and payments
- three-way matching before payment is released
- verifying vendor bank details every time they are added or changed.
"Get yourself a system that allows for earlier detection of patterns before they become losses," says McLeod.
This is where solutions like OK2Pay come in. OK2Pay automates bank account verification and payee confirmation, checking that payment details belong to the intended recipient before any funds leave your organisation. It proactively flags anomalies before they become losses and can be installed and running across accounts payable systems in just minutes.
3. Build capability through probity training
Generic and theoretical procurement training is good in theory, but without an aspect of practical implementation, remains just that. Scenario-based and hands-on training that covers real fraud methods and real warning signals for procurement, accounts payable, and finance teams provides more impact, ensuring they know what to look for and feel safe enough to act on it.
Build capability through probity training
McLeod has developed created a 21-point Procurement Integrity Checklist, covering governance, policy and probity, tendering, contract management, procure-to-pay controls, purchasing cards, and monthly analytics.
Download the procurement integrity checklist
Don't wait for a loss to find out where the gaps are
Fraud happens where controls are assumed, not tested. In local government, the stakes are high. Procurement fraud does not just cost money, it damages the trust ratepayers place in their councils.
With increasing threats, passive compliance is no longer optional. To find out how OK2Pay can help your council with bank account verification and payee confirmation and active monitoring of your transactions to reduce procurement fraud, get in touch with the Satori team today.
Watch the webinar with McLoed and Satori on Procurement fraud in Local Government: