(Procurement) Fraud Prevention (3) – Why It’s Important

Posted by Andrew Bartolini on September 7th, 2010
Stored in Articles, General, People, Process, Strategy

Our recent focus on procurement fraud which began here with coverage of one Bad Apple and was followed here with a discussion of different CPO strategies , including those of “anchorman” (for his steadiness, not his beer-chugging prowess), Pete Connelly, CPO of Leggett & Platt continues today with a bullet-form discussion of why procurement fraud prevention is something that needs to be part of every Chief Procurement Officer’s 2011 strategic plan.

* Fraud is a huge and costly problem – according to the Association of Certified Fraud Examiners’ 2010 Report to the Nations on Occupational Fraud and Abuse , the typical organization loses 5% of its annual revenue to fraud; 25% of fraud cases involve losses that exceed $1 million (Sidebar: I recommend downloading this report, if only to read and use the Fraud Prevention Checklist found on page 80 – 81.).

* Procurement fraud is one of the more complex types of business fraud – Procurement fraud can occur at any one of numerous points across the source-to-settle process; it can involve insiders who may be internal experts in business operations; it can involve outsiders whose actions and behaviors are impossible to track.

* The typical procurement department presents regular “opportunities” for fraud – Criminologists and fraud experts have shown that three factors that are present in every situation of fraud:  pressure, rationalization, and opportunity. As we’ve discussed here, visibility into supplier spend and procurement processes is poor or lacking in many procurement departments. While the “visibility train is coming,” the current lack of visibility or transparency across sourcing, contracting, procurement and invoice activities should be making many procurement and finance executives very uneasy.

* Procurement fraud is alive and well – Two cases in the news last week: HP and military supplier company Terry Hall

Since an “ounce of (procurement fraud) prevention is worth a pound of cure,” our final two articles in this series will weigh in with several more prevention strategies. One article will include ideas from an accounting and controls expert and an idea that ties back into one of our major themes at CPO Rising this year. The other will be an article that shares the insight and perspective of a recognized industry expert on fraud and fraud prevention.

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