From conflict of interests to payment diversion, fraud in Procurement is a risk for most companies. Fraud schemes are numerous and can have severe financial and reputational consequences. 

Nevertheless, common sense and investment in processes and control systems are the best approach to mitigate such risk.

 

Following are some recommendations:

• Ensure the risk of procurement fraud is taken into account on the company risk register. Assign a risk owner who has overall responsibility in the organisation.

• Hire the right people. 

• Educate employees and suppliers to establish the right culture.

• Implement a code of ethics in Procurement that is relevant to your activities.

• Train all employees involved in procurement-related financial decisions, to identify procurement fraud. 

• Rotate portfolios every two years to avoid too much intimacy between buyers and suppliers.

• Build an effective segregation of duties to make sure that a single employee does not control the complete procurement process. Approver and requester cannot be the same person. 

• Monitor exceptions closely and secure them with secondary approvals.

• Ensure the appropriate procurement process is followed. Enforcing a "No PO, no payment" rule is very effective to avoid suppliers accepting orders without PO.

• Put appropriate controls on the procurement process end-to-end (See chart below) and perform targeted audits.

• Use a three-way-matchto confirm that the amounts on the PO, reception slip and invoice are aligned and coherent with the contract schedule. Implement a variation limit for costs to avoid undue rejections. 

• Remove all permissions and authorities to staff members changing role within the organization. Review and validate such permissions once a year.

• Authorize payments only to approved vendors with the appropriate status.

• Vendor creation should follow an approval workflow involving the vendor, Procurement and Finance. 

• Banking information modifications should be closely monitored and effective for payment only after a specific approval workflow involving the vendor, Procurement, and Finance. Special caution should be given to vendors that are re-activated after a long period of inactivity.

• Review procurement processes at least once a year to close the loop with relevant stakeholders.

• Perform proactive data set matches of your staff against suppliers looking for shared names, bank accounts, addresses and telephone numbers.

• Leverage the power of data analysis to spot deviations and red flags that could indicate a potential fraud. Special scrutiny should be given to expenses incurred with P-cards and fuel cards.

• Organize an anonymous Whistle blowing service, preferably externalized.

• Finally, always remember that multifunctional joint sourcing decisions and Process automation are your two best friends with respect to fraud in Procurement.