No matter how the government is careful in giving out contracts or no matter how the monitoring method in place is strict frauds had been occurring at a significant rate that necessitated giving fraud special attention, so that it could be prevented or kept at a minimum. Fraud occurs when there is a product substitution, cost mischarging, method of pricing becomes defective, progress payment fraud, and when there is an antirust violation.
• Product substitution occurs when the contractor uses goods and services that are nonconforming and does not inform the contracting government department about the deficiency and would go ahead and charge what is appropriate only for conforming goods. • Cost mischarging occurs when a large cost-reimbursement is involved. There are three kinds of mischargings: accounting, cost of material, and labor mischarging.
The one that auditors can detect easily is the accounting mischarging because such mischarging occurs by hiding unallowable costs with allowable expenses or concealing it in accounts the auditors do not have access to is also possible. When it comes to material cost fraud could occur easily since it is easy to misplace material. Or the contractor that could have a commercial contract can easily mix the material bought for the governmental contract.
Labor mischarging is also difficult to detect since contractors could charge for works not performed and the government might find it difficult to trace it or it will be costly (Weisman 1987) • Defective Pricing occurs when inflating costs incurred that could be accomplished by either old or cost data that is far from being accurate. This could happen in spite of the fact that the government is covered by a clause that allows it a price reduction if for whatever reason the contractor is caught presenting data that is inaccurate, is not complete, or is not current.
• Progress Payment is when contractors get paid for the job completed and the cost incurred. This arrangement could be a source of fraud because the government wants to take the contractor’s integrity into consideration and could be exempt from immediate audit. • Antitrust violation known also as collusive bidding, bid rigging or price fixing is fraud when it occurs. It is possible a contractor would want to bid low planning to make up for it by the cost the government is required to pay. Companies also could outbid their competitors in order to hire them after they won the bid.