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Tightening the chain on fraud

Procurement fraud has a far lower profile than more headline-worthy varieties – but it provides rich pickings for its perpetrators. How can businesses prevent it? Paul Guile has some advice.

Procurement fraud is nothing new. Samuel Pepys mentions kick-backs in his diary from the 17th century. In the 21st century, it has the dubious distinction of being one of the highest-risk forms of commercial fraud. Unfortunately, it’s also low visibility.

It may not grab the headlines like embezzlement or securities fraud. But with both a huge number and value of transactions, procurement is a natural target for fraudsters.

The National Fraud Authority’s most recent survey, published in March, reports that procurement fraud cost the UK public sector about £2.3bn in 2011 – that’s nearly 1% of the entire government procurement budget. And in a CIPS (Chartered Institute of Purchasing & Supply) online survey, 9.3% of businesses confirmed that they had suffered at least one procurement fraud during the past year.

And while preventative measures are taken against other types of fraud risk – usually ones that have more obvious reputational consequences – procurement fraud appears to be considered a problem only after it has occurred. Fortunately, there are some relatively straightforward steps that can be taken to combat it.

Common mistakes

The first step towards tackling fraud is to stop making the kind of common mistakes that we’ve documented over the years, including the following:

  • Procurement does not have the importance it should. Operations or sales departments gain kudos for generating company revenues, but most of that money is spent in procurement. Yet many organisations do not have procurement visibility at board level. Some don’t even employ procurement specialists.
  • There is no procurement fraud strategy. If fraud risks are considered at all, they are not linked to procurement. Yet both of these issues are based on the value for money approach and are therefore natural partners.
  • There’s been no procurement fraud training – in some cases, it’s never even been considered. How can people spot procurement fraud if they are unaware of how it can be committed?

This is an extract from the Finance & Management Magazine, Issue 202, September 2012.

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