How to Commit Procurement Fraud!

I’m still planning to write the book titled  “How to Commit Procurement Fraud” one day. I think it could be a best seller.

So how might the book start? Perhaps with motivation. You look at the money being made in the casinos of the City and Wall Street. Or footballers being paid £10 million a year and not even playing in the first team. Or ex-Prime Ministers making millions advising despots and totalitarian governments, or ex-Chancellors getting £650K a year from an investment firm he was responsible for regulating until recently.

And you might think – I want some of that. I deserve it as much as those others. You know a bit about procurement, so that seems a good way to  pursue your evil plans, so you apply for some procurement jobs, and off you go.

The question is, what are you looking for at your job interview, in terms of identifying organisations where it shouldn’t be too difficult to extract some reasonably impressive ill-gotten gains? Your opportunity comes, usually at the end of the session, when they say “do you have any questions for us”?  Yes, you say. I’ve got three.

  1. Do you have a purchase-to-pay process with a “no purchase order, no pay” policy, rigorously enforced?
  2. Do you have a structured process for validating new suppliers, that has to be completed before they can be paid anything by your organisation?
  3. Do you have clear delegated levels of authority and multiple sign-offs for all but the very smallest levels of expenditure?

Now, if the answer to all three of those is “yes”, then smile politely, tell your interviewer you’re not interested in the job, and leave. Because, while it won’t be impossible, procurement-related fraud in that organisation is going to be a lot more difficult than in those where one or more answer is “no”.

“No Purchase Order, no pay” means you can’t just create fake invoices for payment without having to create a fake PO as well; a level of additional complexity for the fraudster. Proper validation of new suppliers means creating dummy companies – owned by you or your associates of course - as a home for fraudulent payments is more likely to get found out. And sign-offs on expenditure puts an obvious barrier in the way of the fraudster.

Those of you who are experienced procurement practitioners will by now be pointing out that there aren’t many organisations where the answers are all “yes”. How many might qualify?   Maybe 10 -  20% of the total organisational population? And it’s not simply a matter of size; I’ve seem huge firms that would score 0 out of 3 and SMEs that have very good controls. Looking at the victims of the frauds we have seen in this area shows that large organisations are certainly not invulnerable.

I’m reminded of a certain large public sector organisation, a major county council actually, some years ago where I asked the CFO whether their ERP system was being used for all P2P transactions. Yes, she said. That’s great, I replied, so is that two-way or three way matching of POs against invoices?

She looked blank. After I explained what I meant, she said “oh no, we don’t do any of that. I meant we pay 100% of invoices through the ERP system. We don’t use it for Purchase Orders at all or do any invoice matching ... but we do pay the invoices that come into us through Oracle”.

That’s the sort of place you want to work, if you’re aiming at a career in white-collar crime!

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First Voice

  1. bitter and twisted:

    I dunno.

    In the no PO no Pay company, will the fictitious PO ever be noticed in the maelstrom of panicky after-the-fact Purchase Orders?

    Restrictive rules for new suppliers is a good way to protect dodgy incumbents,

    Sign-offs are a paradox. If there is concrete proof to prove to the signer the invoice is valid, then the signature is unnecessary and if there isnt, whats the point? I think signing should be a last resort, where a senior person has to out their gonads on the line.

    I think what matters is: Proving receipt, proving receipt, proving receipt, and no secrets about prices. Proving receipt is important as well.

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