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12 October 2013 | Will Green
Procurement is one of the highest risk activities and fraud can potentially be committed by anyone involved in the process.
Paul Guile, the CIPS fraud advisor and managing director at Corporate Vigilance, told buyers at the CIPS Annual Conference fraud costs the UK more than £2 billion a year, but the true figure was probably higher because it was under-reported.
“Procurement fraud potentially could be committed by anyone,” he said. Guile described how he uncovered a fraud worth £950,000 when a supplier billed for “ghost workers” across a number of cleaning contracts.
In another case fraudsters sent a letter to the Olympic Delivery Authority claiming to be from Skanska and changing the firm's bank details. Guile said the criminals used the cash gained to “buy a parade of shops”.
Redirecting deliveries, altering invoices, creating false suppliers and splitting orders to avoid the tender process were among the practices identified during a discussion.
“You don’t need to pay a consultant – the risks will be known within the organisation,” said Guile.
He said organisations were vulnerable because of a number of factors including lack of board-level acceptance of the importance of procurement fraud, lack of trained staff, lack of risk mitigation and no central point of intelligence.
Guile listed risk areas as bribery, conflicts of interest, specification manipulation, bid rigging, ghost companies, sole sourcing, overcharging, false claims and variations to contracts.
He described uncovering a £1.4 million fraud in which a senior manager was able to raise orders, send invoices and then pay them. But the firm never went to the police and the man was never prosecuted because it emerged the company CEO was collaborating in the fraud and the reputational risk was considered too great.
“Procurement fraud normally requires some form of inside collaboration,” said Guile.