Procurement related fraud increases by more than 50%

Procurement related fraud increases by more than 50%

Posted by Pete Loughlin in Procurement Best Practices, Procurement Process, Purchase to Pay, Purchase to Pay Process 28 Oct 2013

It’s astonishing! At a time when we have Sarbanes Oxley and a culture of control, in the climate of transparency and scrutiny and a fetishistic focus on finance – how is it that fraudsters have been able to get away with a more than 50% increase in procurement related theft?

But it’s not that astonishing really. A cursory glance at the procurement practices and purchase to pay processes in any organization will reveal opportunities to defraud and while we should never forget that it is the fraudster that’s to blame, the responsibility is shared with the executives who choose to turn a blind eye and underinvest in proper P2P.

Purchasing Insight logoThe percentage of companies affected by vendor, supplier or procurement fraud increased from 12% in 2012 to 19% in 2013. That’s according to the Kroll Global Fraud Report Annual Edition 2013-2014 the research for which was performed by the Economist Intelligence Unit and it’s the most significant increase of all types of fraud investigated in the report. And while this may raise eyebrows if not the blood pressure of many senior executives, it really isn’t surprising.

For many, pay increases are something they recall with a sense of nostalgia indeed, pay cuts have been common-place in some industries. The jobs market has been stagnant for years yet living costs – the cost of food and fuel – have risen disproportionately. Earnings in real terms have plummeted. Is it any wonder that a procurement and P2P environment that allows fraud presents, for some, an opportunity to right a few wrongs? This is in no way to excuse the perpetrator but if a business pays scant regard to the proper controls that should be in place to mitigate fraud, they are inviting problems.

But it needn’t be bad news. This should be a wake up call to those business that have ignored purchase to pay and it is possible to put in place some simple measures to begin to mitigate the risk of falling victim to this increasingly popular sort of fraud.

3 easiest ways to prevent procurement related fraud.

To be fair, when the business priority is to remain afloat, back office processes like procurement and accounts payable can be seen as a secondary priority. It can take months or even years to establish a robust purchasing and payment policy. There may be a need to make an investment in staff, training and IT but there are some fairly straightforward steps that should be put in place as a priority.

 1. Compliance to policy

There should be a procurement policy which dictates who buys what from whom. One of the easiest ways to defraud a business from within is to go off piste with purchasing. Buying from suppliers that haven’t been vetted properly presents an opportunity for buyer/supplier collusion and persistent attempts to ignore policy should be viewed with great suspicion.

2. Segregation of responsibilities

Some might find this hard to believe but today, even in large, mature – even publicly quoted companies – there are still people who do everything P2P themselves – set up suppliers, order, and approve payment. Having all of those responsibilities is like having the keys to the safe. It’s P2P 101 – segregate responsibilities.

3. P2P processes

Tight processes and controls aren’t just there to make finance people feel important. If there aren’t sufficient checks and balances in place – for example to check that an invoice relates to goods or services that were actually ordered and delivered – suppliers can exploit this weakness and send invoices for non-existent deliveries, duplicate invoices or invoices with inflated prices.

Running a business and leaving loopholes in procurement and purchase to pay processes is like riding a motorcycle naked. On a sunny day with the wind in your hair, nothing could be nicer. But leathers and helmets are there for the real world where, when things go wrong, they can go very wrong.

The increase in procurement related fraud may be a disappointment but when businesses fail to pay proper attention to P2P I’d have to say – like I’d say to the naked biker bloodied and dazed because they came off their bike – what did you expect?

Pete Loughlin can be found on twitter @peteloughlin

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