The new year has barely begun and already we have a hot topic courtesy of the horse meat scandal.
The Food Standards Agency
is now investigating with the police and there have been raids carried out and major questions are being asked about how this food supply chain has been managed.
The scandal seems to be escalating on a day-by-day basis with many well-known organisations affected, not just in the UK but across Europe. It is unlikely the facts established so far will be the end of the matter and there is no clear indication when it will end. What else will be uncovered?
At the moment, investigations are underway to protect public health and address any consumer concerns. But - although there has been no suggestion so far - I wonder how long before we hear of procurement fraud and within that fraud by misrepresentation? This could take a range of forms:
- Product substitution to the supplier. It is unlikely the buyer requested ‘horse meat’ in the product specification.
- Product substitution to the consumer. Would the consumer have bought the product if they were aware of the substitution?
- Financial loss. Was there an element of financial pressure and cutting costs that the addition of horse meat made it cheaper to produce and increase profits?
- Bribery and corruption. Who was aware of the product substitution? If so did money change hands to those complicit in the actions with the cost savings shared?
I suspect many organisations are now carrying out their own internal reviews to establish if they have the same problems. And as the investigation progresses, the inevitable question of ‘how could this happen?’ will be asked.
In the quest for cheaper products, supply chains have become longer and more complex with hidden dangers and opportunities. Any organisation with multiple suppliers should ask itself: Do I have clear visibility of my supply chain? Do I know how long my supply chain is? And do I really know who my suppliers are, or has the work been subcontracted so far down the supply chain that it’s just too much hassle to ask?
It is true the longer the supply chain, the harder it is to monitor and carry out compliance and audits checks. But what this scandal has shown us is that this is crucial to protect reputation, but more importantly, to protect others.
Many organisations may have audit trails connected to their supply chain but are these trails checked and re-checked? Often there is an over reliance on paperwork, but remember paperwork can be forged.
Now is the time for organisations to be proactive and enforce their own procurement processes, and ensure they know who they are dealing with down the line. If not, it will only be a matter of time before the next supply chain scandal is uncovered in 2013.
☛ Paul Guile is CIPS global procurement fraud advisor. CIPS is holding a Procurement Fraud MasterClass on 11 June in Newcastle. For full details please click here.