Procurement fraud - How does procurement prevent fraud?

What is procurement fraud?

Fraud is an illegal act which involves the deception of an individual to gain a dishonest outcome or advantage. Procurement fraud is any fraud that relates to the purchase of goods and services. The most common types of fraud are:

• Corruption: This is the payment or receipt of any unauthorised benefit. Examples could include accepting cash for influencing a decision or favourable treatment.
• Conflicts of interest: This is where employees have undisclosed interests that could interfere with their work. Examples include engaging in part time work or consultancy without permission or using sensitive company information for personal benefit.
• Theft of assets: This could include false accounting and misuse of information
• Falsifying performance and reports: This could include submitting false accounts to qualify for a bonus, manipulating financial reports or supressing regulatory reporting such as compliance with environmental policies.

How does procurement prevent fraud?

Procurement professionals have a duty to their organisation to eradicate fraud. It’s even more important that organisations give procurement professionals adequate training to learn how to identify fraud and how to report it. Organisations should implement a policy that includes all aspects of fraud so that both employees and third parties understand the organisations code of conduct.

Take a look at just some of the methods procurement can adopt to prevent fraud.

• Ensure that a formal declaration of vested interests is established for all staff and suppliers.
• Be trained to understand fraud and the circumstances in which fraud might occur in your organisation.
• Maintain a suitable body of knowledge about fraud cases and the types of fraud that can occur in your markets, at home and abroad.
• Have a full understanding of rules, regulations, laws, and guidelines relating to UK and global fraud.
• Ensure that checks for fraud form part of all vendor assessment and supplier evaluation programmes.
• Formalise commercial anti-fraud policy within the main procurement strategy document.
• Strive to minimise bottom-line financial loss to your organisation arising from fraud.
• Review, analyse and challenge all supply-chain business processes to mitigate the possibility of fraud in each one.
• Run regular audits with your suppliers to ensure that their own risk position has not changed since the working relationship was established.

What is the impact of procurement fraud?

There are two separate victims of fraud. Those who suffer directly from fraud and those who are secondary victims who suffer vicariously. One intangible cost is an emotional one and the effect it has on the well-being of another person. It’s important that procurement professionals recognise that fraud costs organisations significant sums of money and loss of profit too. Here are some of the impacts procurement fraud can have on your organisation.