More legal news
01 November 2001 | Robin Parker
Purchasers put their jobs at risk if they fail to tackle corrupt supply practices, a leading fraud investigator has warned.
Allan McDonagh, managing director of fraud prevention group Hibis Europe, told the recent "Developing winning strategies to combat fraud" conference in London that procurement fraud is often misconceived as an auditor's problem.
"Fraud is the responsibility of every manager," said McDonagh, a former investigator for Customs & Excise. "But managers are not taught that this is so. Purchasers should take on the challenge and the responsibility because, if fraudulent contracts exist, their heads will be on the line."
Procurement fraud is a danger because it is all too easily hidden, he said, and within manufacturing or retail it is not revealed by assessing stock loss. More worryingly, he added, it cannot usually be managed until an investigation is over.
Very few statistics are available, but preventive measures can reduce the risk, McDonagh told delegates.
"To beat procurement fraud, you need effective and transparent tendering," he said. "Let contractors know the policies and tell them in the contract that you won't take bribes."
Commonly cited data from the US-based Association of Certified Fraud Examiners' Report to the Nation on Occupational Fraud suggests fraud costs companies 6 per cent of their revenues on average. Half of this is caused by procurement fraud. Managers and executives are thought to account for 16 times more of these losses than non-managerial employees.
McDonagh said he was concerned that companies rarely have records of failed bids for supply contracts.
"Be suspicious if one contractor has repeatedly bid and failed, because they might be involved in collusive tendering," he warned.
He also advised managers to be aware of specification fraud, in which contractors use materials of a lower quality than required but still charge full rates.
He urged managers to ensure that specialised purchasing processes, from specification and tendering to settling invoices, are properly segregated to reduce the risk of fraud.