Martin Kochman at the Procserve roundtable – using big data to identify procurement fraud

We wrote here about the recent Procserve roundtable and the potential power of big data and of spend analytics in our procurement world. (And another plug for the Procserve LinkedIn group which they’ve titled “The Great Procurement Debate”).

In that piece, we promised to come back to the presentation from Martin Kochman, a partner at PA Consulting. He talked about the power of big data and analytics, going well beyond the pure “how much did we spend on what with whom” procurement paradigm. For instance, new areas of interest might include looking at how key contract terms might affect value for money, or supplier compliance with contractual Ts and Cs. The point that made us sit and take note though was around using data and analytics to identify fraud and corruption – something that we haven’t really come across before.

Now some of his points were fairly obvious - issues such as identifying duplicate suppliers, or unexpected variations to payee details. But more complex analysis of spend patterns and contract information might tell us something about the chances of collusion between internal staff and suppliers, or simply internal corruption. Data ranging from the time taken to let contracts, the number or type of contract variations, or inappropriate administrator access to P2P systems for instance might all be indicators.

Using analytics to identify where patterns of spend differ across different departments or even people (budget holders, requisitioners or order placers) is another idea. So let’s take an example. Suppose you’re in a large organisation with possibly dozens of marketing managers. Running an analysis of their spend patterns, you find that virtually all of them use between 3 and 6 different design firms for their work in that spend area. But one particular marketing manager only ever uses one firm. And has done so for the last three years.

Now of course there might be many legitimate reasons for that. Maybe the manager only looks after one major brand and has a very concentrated brand image, so keeps all the design in the hands of one firm. Fine. Or just maybe, the manager is taking a backhander from the favoured firm in return for exclusivity (and higher than market prices, undoubtedly).

Or perhaps we run an analysis to work out the average day rate being paid for IT contractors across different parts of the business. The spread of rates is fairly consistent generally – but here is an outlier department with much higher average day rates. Again, there may be very rational explanations. But would it be worth taking a closer look? Too right it would.

There’s more of course that the explosion in big data – really, that means the ability to conduct more sophisticated analysis on our data – is going to bring. But as I say, Kochman provided a thought-provoking and different take on procurement opportunities arising from that power.

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