In a previous post titled ‘What Hercules’ second labor teaches us about procurement fraud,’ we equated procurement fraud to Hydra, the many-headed monster that Hercules had to slay and concluded that to eliminate it, instead of tackling each individual case of fraud as it occurs, organizations have to take steps to cut off the scope for the fraud.
So what are the factors that give rise to the scope for this fraud?
Lack of processes and sub-processes: This is one of the biggest culprits often. When there is no clearly-defined process to follow, it can give rise to maverick spending and unapproved purchasing which can lead to fraud on a massive scale. While most organizations do have some sort of rudimentary processes in place for procurement, they are not robust enough to address all the issues. Take for example the case of ad hoc procurement. Though organizations frown upon ad hoc procurement, it sometimes becomes inevitable. If there is no process in place to verify the requisition or to approach suppliers, then supplies have to be purchased based solely on the word of one person or team who also has his pick of suppliers with whom he could collude. Therefore, it is incumbent upon the organization to have clear processes in place.
Lack of information flow: This is easy to see. In many large organizations, procurement is decentralized. In such cases, there is often no flow of information between departments or locations. This once again gives scope for fraud. If the top management does not know or have no access to the purchasing practices or patterns of a team working out of a different location, then the members of the team have little to no accountability and can get away with perpetuating fraud. Such practices which offer no transparency or visibility should be discouraged by every organization.
We’ll look at more factors in the next post.