Written by Donna Kirk, General Manager Business Pro Leaders Academy.
Whether it’s a person, a business or government department, when fraud is exposed, the repercussions are real and serious.
Despite process, policy and legislation it still happens – simply because while systems can be robust – people are flawed. There are a number of reasons why procurement (purchasing as it is referred to in a commercial environment ) fraud may seem to be the area that gets a free pass:
- It’s always in the too hard basket
- Random spot-checking is often the only line of defence
- Some organisations simply don’t know how to get it right (which is fair enough)
What is procurement / purchasing fraud?
The deliberate deception within the procurement/purchase process that results in financial gain for an individual or group of people.
An example of this is when a procurement officer is affiliated with a vendor who offers the products that the tender is seeking, and the contract is awarded to this vendor at above-market scale after competitor bids, which are far more financially sound, get overlooked. This procurement officer, who is responsible for awarding the contract, then receives a kickback by the vendor.
What are the signs of procurement/purchase fraud?
- Writing tender specifications that benefit a particular vendor.
- Accepting late or suspicious bids
- Frequently extending contracts
- Awarding contract to a vendor who bid well above market value.
- Frequent lack of proper paperwork
- Repeatedly awarding contracts to the same supplier
- One individual oversees the entire procurement process.
- Purchase order splitting to make it appear orders are sitting within financial stipulations.
Not so obvious signs
- Not declaring connections to suppliers (Conflicts of Interest)
- Giving a particular bidder sensitive information relating to the tender
- Frequent lack of proper paperwork – this sits in both lists as this may not be apparent until the person is on leave.
- Individuals not keen to leave the project or take time off.
What others are doing to combat the issue
- Some banking institutions having experienced significant fraud in the past and have implemented HR policies that requires staff to take a mandatory two-week break each year rather than a day here and there. This ensures sufficient time for others to step into their role and potentially pick up any issues.
- Organisations with a two-person sign-off process for any purchase or sale process can help keep the process honest.
- Some Government departments have introduced a Fraud Control Plan – optional and applied to higher risk procurement. [Noting the relative legislation Commonwealth Fraud Control Framework 2017 https://www.ag.gov.au/sites/default/files/2020-03/CommonwealthFraudControlFramework2017.PDF ]
While some people will continue to find loopholes, the vast majority of people are good people doing the right thing.
As a project or procurement professional – we can all ask – am I doing the right thing? Is my team doing the right thing…and how do I know this to be true?
NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.