Firms keep fraud an internal issue

19 July 2011

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19 July 2011 | Adam Leach

Organisations are more likely to deal with procurement fraud behind closed doors rather than report it to the authorities, according to a study.

Research by professional services firm BDO, which provides fraud risk services, indicates purchasing fraud in the UK is going unreported by organisations. It found there have been only two cases of procurement corruption reported to the police in the past six months, even though it is considered to be the most common type of fraud.

Its half-year FraudTrack report, published yesterday, shows fraud totalling £920 million from 1 December 2010 to 31 May 2011, compared to £1.06 billion in the same period the year before.

Simon Bevan, head of fraud services at BDO, said two-thirds of investigations he carries out each year involve procurement fraud and this has been the case during 20 years of doing this work. He said the recent drop in figures is the result of fewer cases reported to the police, as opposed to an actual drop in the number of incidents.

“It’s well known that the majority of fraud committed in the UK is procurement fraud, yet this is not what we’re seeing in terms of reported figures,” he said. “What these figures indicate is that entities are self-selecting which fraud they report. If it’s a simple cash fraud, it seems that organisations are more likely to go the police, yet with a complex procurement fraud they are choosing to deal with the issue internally.”

Bevan believes companies are now opting for the less public option of seeking financial recourse through the civil route. He said: “They will most likely be taking the view that the civil approach means they are more likely to recoup lost money and less likely to risk reputational damage.”

In an SM100 poll published in February, Andy Foulis, head of shared services at Highlands and Islands Enterprise, said he believed purchasing departments were already doing all they could to counteract fraud. He said the responsibility lies with other departments where “routing everything through the purchasing department is discouraged because of the perceived cost in staff and resources”. Foulis said such concern was “short-sighted given the potential cost to the organisation of fraud – not to mention the resultant reputational damage”. 

Overall, the poll found 85 per cent of buyers felt they could do more to counteract procurement fraud.

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