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Effective Analysis Key to Fighting Procurement Fraud

on November 18, 2013

Could, as a Supply Management story notes, procurement fraud potentially be committed by anyone in an organization? In my experience, the answer is yes. Here’s why:

Procurement fraud often begins with a single act of circumventing a control or policy to make a purchase happen. Something as simple and innocent as splitting a purchase to circumvent a procurement limit so that a needed item can be purchased quickly and without going through the normal approval processes. The challenge for most companies is that once the holes in the system are known, the circumventions can be less innocent in the future. This is why it is important for organizations to inspect what they expect in the procure-to-pay process.  The best practice for identifying and preventing unexpected behavior in the procurement process is to monitor and analyze procurements and the resulting invoices and payments on at least a monthly basis. Monthly procurement analysis based on a historical context of 6-12 months provides insights into procurement behaviors that can help identify purchase splits, ghost vendors, variations in invoices from contracts, and other indicators of potential fraud, bribery, and overcharging.

The keys to effective analysis include understanding what is “normal” for procurement officers, suppliers, and even individual items. Understanding what is normal helps to identify the unexpected results that can be combined with other indicators to narrow the field of vision for further review. This might mean more closely scrutinizing the activities of a particular buyer, or the purchases from a specific supplier, or even the purchases of specific items. Performing this analysis, and communicating the organization that this is being done, has two major impacts. First, people behave differently when they know they are being observed. Second, the data doesn’t lie, and having the ability to automatically analyze all transactions to identify the few worthy of further scrutiny allows organizations to narrow the field of vision and focus efforts on unexpected results that are of the highest risk.

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