The seven global procurement fraud challenges

4 November 2013
Procurement fraud is without a doubt getting more visibility in the UK and on the international stage but there is still so much to be done. I have just returned from delivering training in relation to the energy and oil and gas sectors in Bangkok and Kuala Lumpur. This was followed by presentations at the CIPS Annual Conference in London and at Procurex Scotland in Glasgow. So what are the ‘global themes’ of procurement fraud?
  • No clear definition of procurement
The reason a central definition is so important is because it identifies the different areas of the procurement cycle that may be exposed to the risk of collusion or manipulation. The first stage is ‘identification of needs’, for example is there a requirement for this product or service in the first place?
  • Lack of board importance
Procurement fraud is not on the boardroom agenda and there is often no anti-fraud strategy in procurement initiated across the organisation. A successful anti-fraud strategy would consist of the identification of risk, prevention, detection and investigation. Many organisations now have some form of anti-bribery and corruption strategy and guidance, but no anti-fraud strategy for procurement and supply management. This is potentially a high-risk area as many organisations carry out hundreds if not thousands of procurement transactions per year.
  • Lack of training for staff in procurement fraud awareness
Many organisations still do not have procurement fraud training programmes for their staff. This is an important opportunity missed, as often the intelligence and resources to identify procurement fraud already exist within the organisation. Training should be rolled out to procurement, audit, risk, finance, projects and compliance staff (as a minimum) to ensure a consistent approach.
  • Lack of procurement fraud risk mitigation
The lack of risk identification occurs in virtually all areas we have encountered globally. Many organisations do not have procurement fraud formally recorded on the risk register with a designated risk owner. Additionally, procurement fraud is not considered a threat within projects themselves.
  • No central point of procurement fraud intelligence
Fraudsters will often move undetected within organisations - especially large ones - if no one oversees the risk of fraudulent activity. Intelligence gathered is often not shared internally, reducing the opportunity for detection.
  • No clear definition of procurement fraud
At present, there is no legal definition of procurement fraud globally. Often there is an overlap between procurement fraud, bribery and corruption. On many occasions, when it is reported bribery and corruption have taken place, so has procurement fraud.
  • No clear guidance on procurement fraud mitigation
There is often no formal guidance within organisations in how to mitigate and reduce the risk of procurement fraud. This is linked to the lack of strategy. It is impossible to say whether procurement fraud can be eliminated completely, but focusing on reducing the opportunities for fraud to happen in the first place and increasing the likelihood of the fraudsters being caught, will without doubt have an impact. The question is, can your organisation afford to write off any losses during these difficult economic times as the result of fraudulent activity? ☛ Paul Guile is CIPS global procurement fraud advisor
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