In my last article, Procurement Fraud Remains An Issue for All CPOs, I directly quoted a globally recognized CPO who said that “The work is never done; procurement fraud remains an issue for all CPOs.”
To that end, I’ve decided to share a list of Twelve Top Tips for those of you in procurement to help limit procurement fraud.
Twelve Top Tips for Procurement Departments
- Conduct regular audits
- Audits should focus on the design of the process controls and how the controls are monitored.
- A gap analysis of the controls in place across the entire source-to-settle process should be conducted
- An emphasis should be placed on the vendor selection/approval and payment processes.
- Remember too, that the threat of an audit is one of the most effective mechanisms enterprises have to prevent fraud
- Segregate the duties between (1) approving suppliers for inclusion on any preferred supplier list and (2) physically adding them to those lists or to the vendor master or Supplier Information Management system
- Make sure that employees take their vacations and that other staff cover their supply management duties while they are gone
- Monitor inventory levels
- Red flag: When cost of sales is increasing at a different rate than sales, there is a potential problem. This is a hard one to track at the “line level” but it is helpful to monitor this ratio in the hopes of limiting procurement fraud but also helpful in understanding the some of the macro trends within your supply chain.
- Conduct occasional (and somewhat random) pricing benchmark research across a sampling of categories to ensure that prices paid reflect market rates – this may identify fraud but it will also help keep the sourcing team sharp (noone wants a just-sourced category to show up with an above market price in one of these studies)
- Survey losing bidders on your sourcing process integrity AND on sourcing process improvement (so that the survey is not deemed as one focusing solely on fraud)
- Automate supplier communications and negotiations
- Enact the eSourcing 2.0 policy
- Establish an anonymous whistleblower program
- Leverage supply management systems to promote visibility (More on that next week)
We’ll be back next time with a look at what can be done to limit procurement fraud on the payment side. And next week, we will round out the series by looking at how procurement groups can leverage technology to reduce, catch, or eliminate fraud.
