How to detect and disrupt inappropriate procurement activity

For many years our work has reinforced the ongoing risks presented by procurement fraud. Organisations need to be vigilant against unscrupulous suppliers attempting to influence employees. This influence can be caused by undisclosed relationships (e.g. the supplier is family or a friend); provision of excessive gifts and entertainment and payment of kickbacks.

For example, in a recent investigation organised crime elements had targeted employees in specific positions (e.g. procurement officers) hoping to compromise that individual and infiltrate the organisation. What starts as a simple invitation to drinks may be part of an overall scheme to compromise and ultimately enter an arrangement where kickbacks are regularly paid in exchange for being awarded work.

In our experience organisations operating in the mining, energy and construction sectors are particularly vulnerable.

Prevention is the best approach. A well planned procurement framework ensures that employees, suppliers and stakeholders are aware of expectations, while at the same time continue to efficiently provide goods and services. Ensuring appropriate approvals and regular review of procurement decisions remains critical to ensure your controls have not been compromised. Ensure there are valid and reasonable procurement decisions (e.g. sole sourcing or preferred providers).

Even with an effective governance regime there is always a risk that unscrupulous suppliers will attempt to influence employees and as such, continued vigilance is necessary.  So it is important to establish an appropriate entertainment and gift policy, make it clear to both employees and suppliers what is appropriate and acceptable and what the consequences of non-compliance can be.

Other efforts to detect and disrupt inappropriate procurement activity should include:

  • an effective whistleblower policy and regime;
  • analysis to identify trends or anomalous individual transactions;
  • a clear entertainment and gift policy – ensure employees are aware when offered entertainment by suppliers of your expectations and the risks;
  • segregation of duties and independent oversight of major suppliers or contracts; and
  • a clear tone from the top.