Buyers central to fraud prevention

28 June 2000
More legal news

29 June 2000 | Gareth Mytton

Purchasers can play a huge part in fighting fraud, an industry expert has claimed, after a new survey revealed that almost two-thirds of companies in the UK have been affected by corruption in the past year.

The profession can contribute by controlling supply chain and supplier-selection processes, as well as separating tasks and policing staff.

David Sherwin, a partner in consultancy Ernst & Young's fraud investigation department and co-ordinator of the survey, Fraud - The Unmanaged Risk, said 60 per cent of 739 respondents worldwide had suffered at least one case of fraud in the past year.

"Companies have to look at how buyers are monitored and how robust the controls are," he added.

The survey found that 43 companies, including 12 in the UK, had suffered more than 50 cases of fraud in the past year and incurred losses of more than £625,000. Almost half of the cases, involving firms in 23 sectors, concerned banking and financial services.

One reason for this was that firms in the field are highly aware of fraud, said Leslie Bryce, director of group business risk, fraud and investigations at insurance group CGNU.

"There are a number of basic controls that can be introduced to supply chain processes that can help to reduce the fraud risk," she said, adding that the segregation of duties was particularly important, especially between the processing and paying of invoices.

Bryce emphasised the importance of controls when selecting suppliers. Relationships between buyers and suppliers must be policed and staff should declare gifts, she warned.

The survey found that large firms were more likely to employ certain fraud controls, such as hotlines for reporting suspected cases, awareness training and a clear policy.

"The bottom line is that companies must educate people about fraud," said Peter Connor, director of corporate investigations at business intelligence firm Risk Advisory Group. "The bigger the company is, the more convoluted processes and systems they need."

According to the survey, 82 per cent of all identified fraud cases in the past year were committed by employees.

Rogue suppliers, who were willing, for example, to offer inducements to win work, were only effective if they had willing partners inside the client company, said Connor. This would allow payment to be generated on false invoices, he explained.

Putting staff controls into a system was one way to combat fraud, added Bill Mullaney, purchasing and central services manager at financial clearing house Bacs.

* For more information about the survey, visit


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