Corruption in the Supply Chain – from Africa to Andover…

I've had corruption and ethics on my mind this week, (and I'm not talking about those disturbing dreams about Betty Draper in Rome*...)

The first trigger was the arrest of three senior Alstom managers on bribery charges. Then we had the African Development Indicators report from the World Bank (featured here in Supply Management magazine), saying that firms expected to pay bribes to do business in Southern Africa.

We also saw a different aspect of ethics in the UK, where several serving politicians were caught on camera in a "sting" operation boasting about how, once they stood down from government, they could use their contacts to help clients get influence with politicians. That gave me the opportunity to write a couple of pieces here and here titled with pretty bad puns (given that one of the politicians was a Mr Byers...).

Bribery in far off countries might seem like not a big deal for us in countries like the UK and the US. But it is horribly corrosive: it undermines the rule of law, it encourages criminals and is a transfer of wealth from the citizens and taxpayers of a country to a criminal, corrupt elite. And the next time we shake our heads about "failed states" such as Somalia, just think for a minute about the contribution bribery driven by western and developed countries has contributed to the state of that country.

But we shouldn't be complacent about our own situation. There are plenty of cases (like this one) closer to home. When I was a young, naive purchasing manager, I thought corruption was something that happened to other people. 25 years later, I can (purely within organizations I worked for as an employee or consultant and without too much effort) look back on:

  • A senior procurement manager convicted of authorizing bogus invoices for product that was never delivered, paid to front companies set up by his very unsavoury co-plotters
  • An IT Director who allocated contracts based on the level and luxuriousness of the corporate hospitality offered to him
  • Company technologists colluding with a sales director of a supplier to "pass off" products that weren't actually made by the genuine supplier (so a fraud against both us and the supplier!)
  • Two senior managers falsifying expenses claims -- guys on six figure salaries sacked for a few hundred dollars

Sometimes you don't even have to try too hard. Earlier this year, my consulting company submitted an invoice to the AP Department of a major client organization, and as requested, sent a copy to the manager who commissioned our work. Within a fortnight, we had two identical payments of about $20,000 in our bank account -- the copy invoice had also been paid. Now of course we pointed this out (and my goodness, it was a tortuous process to repay the money), but it would have been very easy just to wait and see what happened...

So from my initial innocence, I now believe that, in big organizations, if there are opportunities for corruption, it is probably happening somewhere. And much is procurement and supply chain related -- the most common involving collusion between someone inside the organization and someone outside (a supplier, customer or similar). So a good discipline for procurement leaders is this: sit down on your own, or with a few trusted colleagues, and spend a couple of hours with this brief, "How could I get rich at the expense of this organisation if I were unscrupulous, clever, and had a bit of help from a supplier?"

Once you've got the answers, start addressing the process flaws, gaps or issues you've identified that make this possible. You can never rule out the possibility, but you can make it harder for anyone to succeed.

*Mad Men fan reference

Peter Smith

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