I recently had a very interesting and surprising conversation with the Chief Procurement Officer of a global CPG company (this recognizable CPO must remain anonymous; the company is well-known with brand name products in most readers’ homes). It was an interesting conversation because the CPO is a progressive leader who has driven procurement transformations across a number of different industries. The conversation was unsettling surprising, because of an admission that this CPO made regarding supply risk. This CPO felt that the company had been able to avoid supply risk primarily because it had been lucky, not because it had been smart or good.
Our conversation, which centered on supply risk (we will return to this topic and my CPO discussion very soon), also touched upon procurement fraud. On the procurement fraud front, this CPO felt that adequate checks had been put into place that would serve as a strong deterrent. But this CPO also said, “The work is never done; procurement fraud remains an issue for all CPOs.”
Some time ago, I interviewed a series of CPOs on the topic of procurement fraud. A few highlights are below.
To begin, most CPOs share a view that there is no silver bullet to preventing procurement fraud and that is something that can be very difficult to detect. One common theme among CPOs was that successful fraud prevention programs start and end with a firm grounding in a strong culture of ethical conduct and corporate governance. One CPO of a global mining company believed that procurement fraud transcended solutions and began with a culture design stating, “You need good financial controls and a whistle blower system and training. You also need leaders who clearly state what is right and wrong. You need system controls so as not allow breaches. You need IT controls; and in a procurement sense, you need checks and balances to ensure the review of any outcome that does not meet pre-determined acceptance criteria. It’s about having a low tolerance to wrong-doing, with consequences known.”
Another “friend of the site,” Pete Connelly, weighed in with his approach when he was Chief Procurement Officer at Leggett and Platt,:
“We have a very strong and deliberate supplier code of conduct policy worldwide. Several parameters include:
a) Each procurement employee signs a code of conduct compliance statement annually – every worldwide team member
b) There is a formal face-to-face review with every employee discussing the code of conduct. This includes examples of potential and real failures. We will use role play, case studies, and round table discussions to sensitize our Leggett partners as to the importance of our ethical standards and a zero tolerance policy in executing the spirit and letter of our standard.
c) We have face to face reviews with suppliers affirming our code of conduct and requiring them to confirm their adherence to it.
d) We have a corporate wide 1-(800) line-type reporting process where folks can call in and report possible violations directly to our independent Corporate Audit Officer.
Most of all, during our hiring and management process we stress the absolute requirement for integrity and honesty in every activity of Leggett and Platt. From a Procurement perspective we can sum it up as ‘do not steal, do not lie, do not deceive.’”
Even with the strong and deliberate policies and approach, I am certain that Pete would agree that procurement fraud remains an issue for all CPOs.
