Managing the risk of procurement fraud

10 October 2018 00:00

How proactive is your organisation in preventing procurement fraud? What measures are in place to reduce the possibility of incidents within your company and are they effective?

These are questions every business should ponder regularly as the risk of procurement fraud is an ever-present reality.

Action Fraud, the national reporting centre for fraud in the United Kingdom, describes procurement fraud as: ‘any fraud relating to a company purchasing goods, services or commissioning construction projects from third parties … It can also happen when there are payment claims for goods or services that were not delivered or were inferior to what was specified in the order.’

For businesses serious about managing the risk of procurement fraud and preventing the impact of fraudulent transactions on operations, Rudi Kruger, General Manager LexisNexis Data Services said understanding the indicators, which most often involve inappropriate employee-supplier relations, is the best place to start.

He said common red flags include but are not limited to, employee conflicts of interest; procurement employees failing to keep good transactional records or requiring time to prepare for audits; low quality goods sourced from suppliers at higher rates/ prices; unauthorised social interactions or excessive entertaining of procurement staff by suppliers; unprofessional communication – such as after-hour calls, texts and social media exchanges between employees and suppliers.

Best practice for managing the risk of procurement fraud include the following measures:

Culture – Instil a culture of honesty and ethical behaviour within the company and communicate it to employees regularly in an easily understandable and accessible manner. “An integrity driven culture promotes the adherence to rules of supplier – employee engagement. It is important to appeal to the ethical side of an employee’s character as it would encourage them to refrain from participating in fraudulent activities,” said Kruger.

Internal controls – Ensure adequate internal controls are in place to investigate, manage, monitor and audit the procurement process. “Appoint credible employees to oversee the procurement function and apply strict policies and procedures to the goods and service sourcing process,” said Kruger.  “It is also wise to keep a list of preferred suppliers which is sorted by industry, capacity, quality etc.”

Stay informed – Know your suppliers and employees better by vetting them as part of policy on a regular basis.

The ability to identify procurement fraud within a business is enhanced with technology enabled solutions, like Lexis ® ProcureCheck, that assist with procurement vetting and vendor management. Lexis ® ProcureCheck is an easy to use web-based system that is extremely useful in the procurement process as it facilitates the verification of various data sets, providing linkage to identify possible conflicts of interest, pass-through schemes and shell companies. Additional benefits of Lexis ProcureCheck include that it:

  • Provides automated irregularity alert reports
  • Provides vendor and staff reports (useful for King IV committees)
  • Allows you to create your own internal vendor list (preferred and non-preferred vendor indicators)
  • Allows clients to import vendor and staff lists
  • Vendor vetting (on an adhoc or batch basis)
  • Ongoing monitoring
  • Detailed conflict of interest reports.

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