News focus: Time to get tough on fraud

14 February 2011

15 February 2011 | Adam Leach

With procurement recently highlighted as a chief offender in cases of fraud, Adam Leach asks how to minimise the damage to the profession’s reputation.

Rather fail with honour than succeed by fraud.” So said the Greek philosopher Sophocles, and while a lot of time has passed since he said those words, their significance remains.

Recent figures calculate that fraud cost the UK economy about £38 billion last year. In particular, purchasing fraud within central government cost £1.5 billion, while £855 million came from local government.

And elsewhere, procurement was singled out as the main offender in a report by accountancy firm BDO that named it as the top type of private and public sector fraud.

Taking all this into account – not to mention the fact that current economic woes intensify the need to prevent money going into undeserving hands – there has never been a better time to take action against fraud. 

And there is cause for optimism.While it is stalling at the moment, the Bribery Act is expected to come into effect in the not-too-distant future and although it might be slightly watered down to stop it unfairly encroaching on normal business, it will be a step forward.

In addition, Cabinet Office minister Francis Maude announced at the end of January that he will be setting up a group of ‘counter fraud champions’, who will be based in all major government departments to uncover suspicious activity. Their duties include measuring fraud, error and debt and ensuring it is reported; undertaking fraud risk assessments to identify the areas most vulnerable and ensuring policies and systems are fraud-proofed; and sharing good practice on combating fraud including successful work in their own department and the results of pilots overseen by the counter fraud taskforce.

The sentiment of this action seems to chime with those in the industry. SM’s latest poll reveals the majority of buyers (85 per cent) believe the profession could do more to prevent procurement fraud.

Brian Grew, vice-president of commercial, marketing partnerships at Live Nation, believes buyers can play a pivotal role in identifying and stopping fraud throughout businesses.

Procurement and supply chain professionals are essential in the fight against fraud by defining and implementing robust processes along with internal departments. This should be an invitation for procurement to engage even with
the sales arm of their business to help guide and advise on professional conduct and engagement,”
he says.

Steve Taylor, a buyer at JMC Aquatics, believes companies must “establish a clear code of ethics for staff to sign up to with clear and significant penalties for any breaches.” He also says they should “refuse outright to deal with any suppliers who involve themselves with ‘backhanders’ etc as part of their normal everyday practices”. 

But he admits this won’t always be easy: “The latter may be difficult for those buyers who operate in countries where such practices are established and expected but without such a stand being made it is hard to see how we can ever hope to minimise the damage to our reputation as a profession.”
Simon Bevan, head of fraud at BDO, said despite working on more than 200 procurement fraud investigations, no buyer has ever blown the whistle. He believes “the whole industry turns a blind eye to procurement fraud”. 

Buyers do not agree. Bill Fyfe, head of procurement at the National Trust for Scotland says: “I would doubt very much if any professional procurement person would turn a blind eye to fraud. There may be times when they don’t know who to go to or what to do about it but the new Bribery Act will facilitate a way of reporting it.”

With a crack team of anti-fraud champions scurrying around Whitehall and a major piece of legislation coming through, this might just be the year procurement does get tough on fraud.

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