07 Jul 2014 Purchase to Pay fraud – being honest about dishonesty
One of the key reasons to implement tight controls within purchase to pay is to ensure that people can’t steal. But when I talk to businesses about the need to mitigate against the risk of fraud in finance departments – about how it’s possible for staff to collude with suppliers or to falsify information for personal gain – I hear this response again and again: “But who would do that?”
What they’re actually saying is: “We’re all trustworthy here. I don’t know anyone that would do such a thing.” But regrettably, the truth is a little different. The reality is that there are only two types of people – those that cheat and those that cheat more.
Dan Ariely, author of “The Honest Truth About Dishonesty” speaks eloquently on this topic at TED in his presentation “Our buggy moral code” and as he explains, we’re all cheats.
Before you get too defensive, consider this: If you were overpaid change in a restaurant where you’d received especially poor service, would you declare it? It’s the waiter’s mistake not yours. Besides, the bill now seems fair. It’s easy to rationalize. But it’s still stealing. Despite that, most of us would keep the money.
When I was a University student, I had a job in the evenings working in a bar. After several months, I learned that I was working with a cheat – actually, a thief. I was shocked but became dismayed as I learned that not one but all of my co-workers were thieves. It seemed that I was the only one working in the bar that wasn’t “dipping their fingers in the till”. But it was when I learned that the manager was doing the same that I began to rationalize that I should be doing it too – after all, I was working as hard as everyone else? But I didn’t. I didn’t join in – probably because it would have meant actually taking cash – palpably stealing money – but if it had been something else they were all doing like exaggerating hours worked, something less obviously morally wrong, I bet I would have.
This is what Dan Ariely explains in his talks and writings. We all cheat – mostly in trivial ways but the factors that determine whether we will or will not cheat are not obvious. It’s linked to our perception of morality. Which explains why in some of the experiments that Dan engineered, it is much less likely that someone will cheat in a test to recall the ten commandments than a test of algebra. This also explains why we are much more likely to take a pencil home from work than to help ourselves to a few pennies or cents from the petty cash tin.
There are other factors and I’d recommend you view Dan’s TED talk but understanding why and when people cheat – being honest about dishonesty – is important. It isn’t being loyal to assume that your colleagues are all honest and trustworthy, indeed I’d go as far to say that it would be delusional to thinks so. But how do you spot a cheat? If you were to try to identify the fraudster in your place of work, who would it be. A man? A woman? A youngster? A new starter? Temporary staff maybe or a contractor?
According to a study that KPMG performed in 2011, this is the profile of the typical corporate fraudster:
• Between 36 and 45 years of age
• Commits fraud against his own employer
• Works in the finance function or in a finance-related role
• Holds a senior-management position
• Employed by the company for more than 10 years
• Works in collusion with another perpetrator
Probably not what you’d expect.
Internal company fraud is not uncommon and the perpetrators often don’t even think of themselves as thieves. They rationalize their actions just as you would if you failed to volunteer that you’d been given too much change by the grumpy waiter. And because it is not uncommon we should not be shy to face it.
Failure to address Purchase to Pay risks is not being honest about dishonesty and the leaders of an organization that fails to invest in proper controls are as guilty as the fraudster and culpable when things go wrong.
Pete Loughlin can be found on twitter @peteloughlin