Thoughts on the Kail Netflix Case: Should Procurement Look at the CIO as a Thief?

You can now add “Former Chief Information Officer of Yahoo Inc.” to the list of titles for Mark Kail. It is a list that already has “Alleged Procurement Fraudster” on it.

Less than a year after coming on board, Kail has left Yahoo, Inc. The tech company said Kail departed to “pursue other opportunities.” However, the move comes amid a lawsuit against the IT expert, filed on behalf of his previous employer Netflix.

Netflix is suing Kail for possibly accepting kickbacks from vendors during his time as IT chief at the streaming service. According to Netflix’s investigation into the possible procurement fraud, Kail may have “received benefits, including but not limited to stock and stock options, from many IT companies that contracted with Netflix while Kail was employed by Netflix.”

As CIO, Kail had a goal of streamlining Yahoo’s data centers. Whether or not he was able to make any progress on that front before announcing his departure earlier this week, well, we don’t know. And, we aren’t as concerned about that right now as other issues. What we do know, however, is that there are a number of things procurement can take away from the news.

For one: A CPO of a fast growing tech company that Spend Matters spoke with suggests that CIO’s have been fighting to not answer to procurement. CEOs should take note of this.

This obviously raises suspicions. Our Spend Matters analysts have chimed in on the news and the issues it presents between CIOs and procurement. Here are some points Jason Bush, founder and managing director, suggests:

  • Procurement fraud is real. The best P2P and financial/payment systems aren’t full proof when it comes to thwarting an inside job – especially an inside job coming from higher up within an organization. Procurement should be front and center in creating and overseeing policies that make fraud difficult in the first place, even with c-level executives, including overseeing and providing sourcing process, vendor management and related support for IT purchases
  • Humans are the weakest link. Always. It’s important to remember that a fraud case or two from imperfect individuals within a company can destroy reputations and hurt the bottom line as much as any other type of sourcing error or supply chain risk
  • High growth companies are at the largest risk for fraud given that many have not invested in the same procurement controls as established firms

Pierre Mitchell, chief research officer at Spend Matters, also had this to add: “Of course, procurement and A/P can have bad actors, especially if they collude (that's why there's segregation of approve/buy vs. pay duties). CFOs can be dirty, too. That's why chief risk/compliance officers exist and really where the third-party auditors need to earn their daily bread.”

3 Takeaways for Combating Fraud

Remember the following:

  1. As Jason observes, there is procurement fraud outside of the function itself and the organization needs to stay tough on its overall oversight of company spend – including the spending activities by the highest ranking and most unlikely sources in the business
  2. Procurement should most definitely give a hoot about its reputation
  3. There are always bad seeds. Have strong policies in place, identify them and spit ‘em out

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