Raising the profile of procurement fraud
In 2012 we trained many organisations both in the UK and across the globe on how to mitigate and identify procurement fraud and there has definitely been some consistent themes.
There is still a lack of profile in many boardrooms around the risk procurement fraud presents despite the National Fraud Authority highlighting figures of substantial losses attributed to procurement fraud.
Bribery and corruption has substantial visibility, but the same does not seem apply to procurement fraud. In this instance, this makes it a higher risk purely for the reason it cannot be dealt with if it hasn’t been identified.
If you look at the definition of bribery – to regain, retain and obtain and unfair
business advantage (typically through a contract) – this could also be included under the procurement fraud banner as a contract forms part of the purchasing process.
Many organisations now have anti-bribery policies, yet most do not have anti-procurement fraud policies. The question we are often asked is “how do we begin our anti-procurement fraud programme?”.
An approach is to initiate a procurement fraud training and awareness programme to staff involved in the procurement process including the end-user. If staff are aware what to look out for, they are another pair of eyes and ears to help you tackle the problem. We have found that following training sessions, even just with basic awareness, staff have identified irregularities or issues within company processes and rectified them.
We have also found many organisations are not enforcing their procurement processes. Bid splitting (where contracts are divided into smaller deals to avoid transparency) is known to occur, but for operational reasons or ease of delivery, it is sometimes allowed to continue.
Of the most concern is that many organisations are not aware exactly who is not following the procurement process, and – more importantly – they are not asking why. It might be that not everybody understands the process, or the reasons could be more sinister, such as fraud.
Every organisation carries out some form of purchasing activity and as such procurement fraud is a risk that affects all sectors. Many might be reading this thinking procurement fraud will not affect us or may not happen to us. Many organisations have said this, and ultimately get caught up in negative publicity.
What happens if the organisation in question is yours? If in doubt, ensure you check.
☛ Paul Guile is CIPS global procurement fraud advisor. This is the first of a series of 12 blogs that will look at fraud risks and common practices.
CIPS is holding a two day Procurement Fraud MasterClass, presented by Guile, on 5-6 March in London. For more details please call 01780 756777 or click here to book online
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Interesting stuff Paul and well done for raising the profile of this important topic. However, you don’t make clear whether the main problem is fraud committed by procurement staff or fraud committed by others on procurement staff. Certainly the latter is best addressed by making sure that procurement activity is undertaken by trained professionals and not delegated down to staff in user departments. Examples of how amateur buyers are caught out are given in my book “Purchasing Scams and how to Avoid them.
Trevor,thanks for that and a valid point worth making. The majority of procurement frauds in my experience are not committed by procurement staff although as in any environment it can happen. The ones I have seen globally occur either before the procurement process has been initiated and the paperwork handed to the unsuspecting procurement staff or the fraud is ready to commence once the procurement process has finished.
An effectively managed procurement process and qualified procurement staff who are also trained how to identify procurement fraud are an essential tool.
This is a great topic and is an issue that takes up a good segment of my time in my organisation. The type of procurement fraud I have run into the most is on the part of the supplier- i.e substitute goods,substandard services, falsified invoices, etc. And, yes we do evaluate past performance on all our bidders and have done so for the past 15yrs. Thing is, a lot of times these fraudsters depend on the bureaucracy of large organisations to get away with fraud for years.
It is great to see an organisation being proactive in mitigating procurement fraud.
Thank you for the good point. This is often missed.
I am dealing with an organisation at the moment with the very same perceived bureaucracy problem.
The processes within the organisation have become so complicated and time consuming that either the people involved in the process no longer understand them or their importance is not understood. Often in this type of scenario, people simply go around the processes as they are seen as time consuming and a paper shuffling exercise.
In this case, there is a high fraud risk and no one is looking at the potential fraud problems that may already exist.
Chances are, the issues are fairly easy to identify,if you know what to look for and there is support to identify them in the first place.
I have found by implementing a procurement breach process aswell as reviewing other processes and strategies, organisations are able to see who is not following the procurement process and other processes and establish why? This often leads to identifying historical frauds that are not or have ever been on the organisation fraud risk radar.
It may also evidence that the relevant process is not understood by all or that the process hasn’t evolved with the organisations changing demands and is no longer fit for purpose.
If a process is straight forward and understood and supported by individuals using it within an organisation, it makes it harder for fraudsters to operate undetected.
For the information of your readers and as an additional resource,if you are registered on Linkedin there is a Group titled “Procurement Fraud and Corruption” that provides discussion on this specialist area and includes information sharing on current risks, trends and investigations.
Mr. Guile,
Very thoughtful inisghts indeed. On a side note, I think it’s very interesting that the problem of procurement fraud is as old as time. I do recall in some of my history classes reading about procurement fraud in Ancient Rome where shippers of products from Greece or Wheat from Egypt would tell the buyers in Rome that their cargo had been on the ship that sunk, when they’d really put it on a different ship and diverted it to, say, Spain and made a fortune selling the stuff plus kept the Rome buyers money that they used to buy the goods. Their only expense was scuttling a hulk and a few small bribes to the port officials who’d not really check up on what cargo was actually on what ship. I am looking forward to the rest of your blog.
Mr Firth, thank you for your comments and taking the time to respond to this blog.
Procurement fraud as you say is far from a new problem and it affects every organisation from every market sector.
No one company can operate in total isolation and therefore the risk of fraud within the procurement process should be at least considered as a risk by all organisations globally.
Even the nuclear industry has this problem. I have attached a link to a brief article I wrote for Nuclear Engineering International recently.
http://www.tinyurl.com/beatthecheats
As for Ancient Rome, I haven’t come across that before. Thank you for bringing it to my attention.